From Organization to Activity in the US Collateralized Interbank Market

Abstract

This paper studies and connects market organization and activity in the US collateralized interbank market using an assumption-neutral approach. We apply cluster analysis to aggregate activity factors suggested by prior studies to support two market organizations: three-tier and core-periphery. We find that four bank-specific factors and one economic conditions factor explain interbank activity for both alternative organizations. We also find evidence that the interbank market organization affects institutions' borrowing and lending. While both organizations moderate interbank activity, the three-tier structure detects distinct market operations which are not represented in the core-periphery structure.

Keywords: collateralized interbank market, market organization, tiering, interbank activity factors, cluster analysis, latent factor analysis

JEL Classification: C30, C38, E44, G10, G21