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Financial stability in networks of financial institutions and market infrastructures
Berndsen,Ron León,C. Renneboog,Luc
Berndsen,Ron
León,C.
Renneboog,Luc
Abstract
An interdependent network coupling financial institutions’ multiplex (i.e. multi-layer) and financial market infrastructures’ single-layer networks gives a more accurate picture of a financial system's true connective architecture. We examine and compare the main properties of Colombian multiplex and interdependent financial networks. Coupling financial institutions’ multiplex networks with financial market infrastructures’ networks removes modularity, which augments financial instability because the network then fails to isolate feedbacks and limit cascades while it retains its robust-yet-fragile features. Moreover, our analysis highlights the relevance of infrastructure-related systemic risk, corresponding to the effects caused by the improper functioning of financial market infrastructures or by financial market infrastructures acting as conduits for contagion.
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Date
2018-04
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Keywords
Systemic risk, Cross-system risk, Settlement risk, Interdependent networks, Contagion, D85 - Network Formation and Analysis: Theory, D53 - Financial Markets, G20 - General, G01 - Financial Crises, L14 - Transactional Relationships ; Contracts and Reputation ; Networks, SDG 10 - Reduced Inequalities
Citation
Berndsen, R, León, C & Renneboog, L 2018, 'Financial stability in networks of financial institutions and market infrastructures', Journal of Financial Stability, vol. 35, pp. 120-135. https://doi.org/10.1016/j.jfs.2016.12.007
License
info:eu-repo/semantics/openAccess