The Microstructure of the Money Market Before and after the Financial Crisis : A Network Perspective

This paper provides a detailed microstructure analysis of the euro money market by taking a network perspective. Banks are the nodes of the networks; overnight unsecured loans form the links connecting the nodes. The static analysis of network indicators confirms a number of stylised facts verified for other real complex systems: interbank networks are highly sparse, far from being complete, exhibit the small world property and a power-law distribution of degree (the number of counterparties each bank establishes links with). On the other hand the tendency of banks to cluster, i.e. to form groups where links are relatively denser, is much lower than in other real systems. The analysis of the topology before versus after the start of the crisis provides interesting insights into the potential for financial contagion; the partition of the network into several smaller sub-networks documents a move against market integration; heterogeneous patterns of indicators across banks of different size offer insights into banks' behaviour. Finally, the analysis of network centrality indicates unambiguously that the biggest banks are also the most central/influent in the system before the onset of the crisis. Things change after August 2007 since medium-sized and very small banks progressively increase their influence in the market as liquidity providers