Network structure and fragmentation of the Argentinean interbank markets

TL;DR

This study analyzes the Argentinean interbank market's network structure, revealing differences between secured and unsecured markets, and identifying sub-networks within the REPO market that are differently affected by monetary policy changes.

Contribution

It uncovers the internal fragmentation of the REPO market based on collateral types and compares its stability and connectivity to the unsecured market using complex network analysis.

Findings

Secured REPO market has fewer but more densely connected nodes.

Unsecured market exhibits less stability and higher volatility.

Two sub-networks within REPO are identified, with different sensitivities to monetary policy.

Abstract

This paper studies the network structure and fragmentation of the Argentinean interbank market. Both the unsecured (CALL) and the secured (REPO) markets are examined, applying complex network analysis. Results indicate that, although the secured market has less participants, its nodes are more densely connected than in the unsecured market. The interrelationships in the unsecured market are less stable, making its structure more volatile and vulnerable to negative shocks. The analysis identifies two 'hidden' underlying sub-networks within the REPO market: one based on the transactions collateralized by Treasury bonds (REPO-T) and other based on the operations collateralized by Central Bank (CB) securities (REPO-CB). The changes in monetary policy stance and monetary conditions seem to have a substantially smaller impact in the former than in the latter 'sub-market'. The connectivity levels within the REPO-T market and its structure remain relatively unaffected by the (in some period pronounced) swings in the other segment of the market. Hence, the REPO market shows signs of fragmentation in its inner structure, according to the type of collateral asset involved in the transactions, so the average REPO interest rate reflects the interplay between these two partially fragmented sub-markets. This mixed structure of the REPO market entails one of the main sources of differentiation with respect to the CALL market.