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Identifying central bank liquidity super-spreaders in interbank funds networks

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  • Carlos León

    ()

  • Clara Machado

    ()

  • Miguel Sarmiento

    ()

Abstract

Evidence suggests that the Colombian interbank funds market is an inhomogeneous and hierarchical network in which a few financial institutions fulfill the role of “super-spreaders” of central bank liquidity among market participants. Results concur with evidence from other interbank markets and other financial networks regarding the flaws of traditional direct financial contagion models based on homogeneous and non-hierarchical networks, and provide further evidence about financial networks’ self-organization emerging from complex adaptive financial systems. Our research work contributes to central bank’s efforts by (i) examining and characterizing the actual connective structure of interbank funds networks; (ii) identifying those financial institutions that may be considered as the most important conduits for monetary policy transmission, and the main drivers of contagion risk within the interbank funds market; (iii) providing new elements for the implementation of monetary policy and for safeguarding financial stability. Classification JEL: E5, G2, L14.

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Bibliographic Info

Paper provided by Banco de la Republica de Colombia in its series Borradores de Economia with number 816.

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Length: 27
Date of creation: Apr 2014
Date of revision:
Handle: RePEc:bdr:borrec:816

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  1. Rodrigo Cifuentes & Hyun Song Shin & Gianluigi Ferrucci, 2005. "Liquidity Risk and Contagion," Journal of the European Economic Association, MIT Press, MIT Press, vol. 3(2-3), pages 556-566, 04/05.
  2. Allen, Franklin & Carletti, Elena & Gale, Douglas, 2009. "Interbank market liquidity and central bank intervention," Journal of Monetary Economics, Elsevier, Elsevier, vol. 56(5), pages 639-652, July.
  3. Rochet, Jean-Charles & Tirole, Jean, 1996. "Interbank Lending and Systemic Risk," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 28(4), pages 733-62, November.
  4. Cocco, João F. & Gomes, Francisco J. & Martins, Nuno C., 2009. "Lending relationships in the interbank market," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 18(1), pages 24-48, January.
  5. Stefano Battiston & Domenico Delli Gatti & Mauro Gallegati & Bruce Greenwald & Joseph E. Stiglitz, . "Default Cascades: When Does Risk Diversification Increase Stability?," Working Papers, ETH Zurich, Chair of Systems Design ETH-RC-11-006, ETH Zurich, Chair of Systems Design.
  6. Kimmo Soramaki & Morten L. Bech & Jeffrey Arnold & Robert J. Glass & Walter Beyeler, 2006. "The topology of interbank payment flows," Staff Reports, Federal Reserve Bank of New York 243, Federal Reserve Bank of New York.
  7. Co-Pierre Georg & Jenny Poschmann, 2010. "Systemic risk in a network model of interbank markets with central bank activity," Jena Economic Research Papers, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics 2010-033, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  8. Camilo González & Luisa Silva & Carmiña Vargas & Andrés M. Velasco, 2013. "Uncertainty in the Money supply mechanism and interbank markets in Colombia," BORRADORES DE ECONOMIA 011094, BANCO DE LA REPÚBLICA.
  9. Markose, Sheri & Giansante, Simone & Shaghaghi, Ali Rais, 2012. "‘Too interconnected to fail’ financial network of US CDS market: Topological fragility and systemic risk," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 83(3), pages 627-646.
  10. Pamela cardozo Ortiz & carlos A. Huertas Campos & Julián A. Parra POlanía & Lina V. Patiño ECheverri, . "Mercado interbancario colombiano y manejo de liquidez del Banco de la República," Borradores de Economia 673, Banco de la Republica de Colombia.
  11. Davide Fiaschi & Imre Kondor & Matteo Marsili & Valerio Volpati, 2013. "The Interrupted Power Law and The Size of Shadow Banking," Papers 1309.2130, arXiv.org, revised Apr 2014.
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