Intermediaries’ Substitutability and Financial Network Resilience: A Hyperstructure Approach

56 Pages Posted: 27 Jul 2022

See all articles by Olivier Accominotti

Olivier Accominotti

London School of Economics & Political Science (LSE); Centre for Economic Policy Research (CEPR)

Delio Lucena Piquero

University of Toulouse - Sciences Po Toulouse - LEREPS

Stefano Ugolini

University of Toulouse 1 - Laboratoire d'Etudes et de Recherches sur l'Économie, les Politiques et les Systèmes Sociaux (LEREPS)

Multiple version iconThere are 2 versions of this paper

Date Written: July 21, 2022

Abstract

We propose a new methodology to assess intermediaries’ substitutability in financial networks featuring higher-order structures (credit intermediation chains). We represent the financial network as a hyperstructure and each credit intermediation chain as a hyperedge. This approach allows us to assess how the failure of intermediaries affects network connectivity. We apply this methodology to a unique dataset documenting the structure of the international, sterling money market at the heyday of the first globalization era (1880-1913). Our results reveal that the failure of individual money market actors could only cause limited damage to the network as intermediaries were highly substitutable. These findings suggest that an international financial network without highly systemic nodes can emerge even at a time of global economic integration.

Keywords: Financial networks, systemic risk, hypergraphs, intermediation chains, bills of exchange, hyperstructures

JEL Classification: D85, E42, F30, G20, N20

Suggested Citation

Accominotti, Olivier and Lucena Piquero, Delio and Ugolini, Stefano, Intermediaries’ Substitutability and Financial Network Resilience: A Hyperstructure Approach (July 21, 2022). Available at SSRN: https://ssrn.com/abstract=4169275 or http://dx.doi.org/10.2139/ssrn.4169275

Olivier Accominotti (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Economic History Department
Houghton Street
London, WC2A 2AE
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Delio Lucena Piquero

University of Toulouse - Sciences Po Toulouse - LEREPS ( email )

21, Allée de Brienne
Toulouse, 31042
France

Stefano Ugolini

University of Toulouse 1 - Laboratoire d'Etudes et de Recherches sur l'Économie, les Politiques et les Systèmes Sociaux (LEREPS) ( email )

21, Allée de Brienne
Toulouse, 31042
France

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