Financial Stability and Interacting Networks of Financial Institutions and Market Infrastructures

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Abstract

An interacting network coupling financial institutions’ multiplex (i.e. multi-layer) and financial market infrastructures’ single-layer networks gives an accurate picture of a financial system’s true connective architecture. We examine and compare the main properties of Colombian multiplex and interacting financial networks. Coupling financial institutions’ multiplex networks with financial market infrastructures’ networks removes modularity, which enhances 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 FMIs or by FMIs acting as conduits for contagion.
Original languageEnglish
Place of PublicationTilburg
PublisherTILEC
Number of pages40
Volume2014-033
Publication statusPublished - 29 Sep 2014

Publication series

NameTILEC Discussion Paper
Volume2014-033

Fingerprint

Financial markets
Financial stability
Financial institutions
Functioning
Modularity
Contagion
Cascade
Financial system
Systemic risk
Financial instability
Financial networks

Keywords

  • multiplex networks
  • interacting networks
  • financial stability
  • contagion
  • financial market infrastructures

Cite this

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title = "Financial Stability and Interacting Networks of Financial Institutions and Market Infrastructures",
abstract = "An interacting network coupling financial institutions’ multiplex (i.e. multi-layer) and financial market infrastructures’ single-layer networks gives an accurate picture of a financial system’s true connective architecture. We examine and compare the main properties of Colombian multiplex and interacting financial networks. Coupling financial institutions’ multiplex networks with financial market infrastructures’ networks removes modularity, which enhances 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 FMIs or by FMIs acting as conduits for contagion.",
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Financial Stability and Interacting Networks of Financial Institutions and Market Infrastructures. / Leon Rincon, C.E.; Berndsen, R.J.; Renneboog, L.D.R.

Tilburg : TILEC, 2014. (TILEC Discussion Paper; Vol. 2014-033).

Research output: Working paperDiscussion paperOther research output

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