Intermediaries’ Substitutability and Financial Network Resilience: A Hyperstructure Approach

This article studies the impact of intermediaries' disappearance on firms' access to the sterling money market during the first globalization era of 1880-1914. We propose a new methodology to assess intermediaries' substitutability in financial networks featuring higher-order structures (credit intermediation chains). We represent the financial network as a hyperstructure and each credit intermediation chain as a hyperedge. This approach allows us to assess how the failure of intermediaries affects network connectivity. We apply this methodology to a unique dataset documenting the network structure of the sterling money market in the year 1906. Our results reveal that the failure of individual money market actors could only cause limited damage to the network as intermediaries were highly substitutable. These findings suggest that an international financial network without highly systemic nodes can emerge even at a time of global economic integration.