Financial stability in networks of financial institutions and market infrastructures

Research output: Contribution to journalArticleScientificpeer-review

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.
Original languageEnglish
Pages (from-to)120-135
JournalJournal of Financial Stability
Volume35
DOIs
Publication statusPublished - Apr 2018

Fingerprint

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

Keywords

  • Systemic risk
  • Cross-system risk
  • Settlement risk
  • Interdependent networks
  • Contagion

Cite this

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title = "Financial stability in networks of financial institutions and market infrastructures",
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.",
keywords = "Systemic risk, Cross-system risk, Settlement risk, Interdependent networks, Contagion",
author = "Ron Berndsen and {Leon Rincon}, Carlos and Luc Renneboog",
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language = "English",
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}

Financial stability in networks of financial institutions and market infrastructures. / Berndsen, Ron; Leon Rincon, Carlos; Renneboog, Luc.

In: Journal of Financial Stability, Vol. 35, 04.2018, p. 120-135.

Research output: Contribution to journalArticleScientificpeer-review

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