An analysis of the Hungarian unsecured interbank market before and after the COVID-19 pandemic

Abstract

In this article, I examine the structure of the Hungarian unsecured interbank forint market and the change of its network in time between 2019 and 2020, the years before and after the pandemic. I introduce the general characteristics of the market, such as turnover and interest rate, as well as the basic network and structural features. It can be established that, following the COVID-19 pandemic, the unsecured interbank turnover has increased by nearly 30%, which is partly attributable to the liquidity-providing measures taken by the central bank. In March, there was a spike in the interest weighed according to daily turnover, and it had higher level and volatility for the rest of the year 2020 than in 2019. Compared with the period following the bankruptcy of Lehman Brothers, the shock resistance of the unsecured interbank market was much more favourable than in 2020. As far as borrowers are concerned, there was some increase in concentration due to the events, but it was far less significant than during the previous crisis. At the same time, the polarisation of the market became stronger, as there were more participants who provided liquidity than those who absorbed a considerable amount of liquidity. Despite increased liquidity, the aforementioned strong polarisation may have been related to the higher level and the volatility of interest rates in 2020.