Structural changes in the interbank market across the financial crisis from multiple core-periphery analysis

TL;DR

This paper reveals that the interbank market's structure is more complex than traditional models suggest, showing multiple core-periphery pairs and a transition to bipartite structures at shorter time scales, especially during financial crises.

Contribution

Introduces a novel core-periphery detection method revealing multiple core-periphery pairs and structural transitions in the interbank market across different time scales and during crises.

Findings

Market structure comprises multiple core-periphery pairs.

Transition from core-periphery to bipartite structures at shorter time scales.

Financial crisis significantly alters market organization.

Abstract

Interbank markets are often characterised in terms of a core-periphery network structure, with a highly interconnected core of banks holding the market together, and a periphery of banks connected mostly to the core but not internally. This paradigm has recently been challenged for short time scales, where interbank markets seem better characterised by a bipartite structure with more core-periphery connections than inside the core. Using a novel core-periphery detection method on the eMID interbank market, we enrich this picture by showing that the network is actually characterised by multiple core-periphery pairs. Moreover, a transition from core-periphery to bipartite structures occurs by shortening the temporal scale of data aggregation. We further show how the global financial crisis transformed the market, in terms of composition, multiplicity and internal organisation of core-periphery pairs. By unveiling such a fine-grained organisation and transformation of the interbank market, our method can find important applications in the understanding of how distress can propagate over financial networks.