Journal of Network Theory in Finance

Risk.net

Identifying complex core–periphery structures in the interbank market

José Gabriel Carreño and Rodrigo Cifuentes

  • This paper proposes a framework, based on stochastic blockmodelling, to identify the structure of a financial network and its evolution over time.
  • The paper identifies and characterizes a complex core-periphery structure in an interbank market with actual data, allowing to identify more than one core, and peripheries of different types.
  • The results can be used to map sources and channels of transmission of systemic risk in a network of banks.

This paper proposes a framework to identify the structure of a financial network and its evolution over time, and presents an application to an interbank market with complete actual data. The framework is based on a methodology popular in the social network literature – stochastic blockmodeling – which, we argue, is more general, transparent and rewarding in terms of results than other proposed methodologies. In particular, it allows us to identify the presence of multiple cores and peripheries as well as the different forms of interaction between them. We find that such a varied core–periphery structure exists in almost all periods for the different instruments analyzed. In the case of term deposits, which account for two-thirds of interbank exposures, we find that, far from being static, the structure underwent a transition in the period 2009–15, with the core increasing its size. We also show that facts revealed by our approach cannot be observed in the metrics commonly used to describe networks. Finally, we describe how the elements identified by our method can be used to single out sources and channels of transmission of systemic risk in a network of banks.

To continue reading...

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an indvidual account here: