Abstract
Three metrics are designed to assess Colombian financial institutions’ size,
connectedness and non-substitutability as the main drivers of systemic
importance: (i) centrality as net borrower in the money market network;
(ii) centrality as payments originator in the large-value payment system
network, and (iii) asset value of core financial services. Two systemic importance indexes are calculated based on two different aggregation methods for the
three metrics: fuzzy logic and principal component analysis. The resulting
indexes are complementary and provide a comprehensive relative assessment of each financial institution’s systemic importance in the Colombian case, in which the choice of metrics pursues the macro-prudential perspective of financial stability. They both (i) agree on the skewed (i.e. inhomogeneous) nature of systemic importance and its approximate scale-free distribution; (ii) on the preeminence of credit institutions as the main contributors to systemic importance, and (iii) on the non-‐trivial importance of a few non-‐banking institutions.
connectedness and non-substitutability as the main drivers of systemic
importance: (i) centrality as net borrower in the money market network;
(ii) centrality as payments originator in the large-value payment system
network, and (iii) asset value of core financial services. Two systemic importance indexes are calculated based on two different aggregation methods for the
three metrics: fuzzy logic and principal component analysis. The resulting
indexes are complementary and provide a comprehensive relative assessment of each financial institution’s systemic importance in the Colombian case, in which the choice of metrics pursues the macro-prudential perspective of financial stability. They both (i) agree on the skewed (i.e. inhomogeneous) nature of systemic importance and its approximate scale-free distribution; (ii) on the preeminence of credit institutions as the main contributors to systemic importance, and (iii) on the non-‐trivial importance of a few non-‐banking institutions.
Original language | English |
---|---|
Place of Publication | Tilburg |
Publisher | Finance |
Number of pages | 46 |
Volume | 2014-040 |
Publication status | Published - 23 Jun 2014 |
Publication series
Name | CentER Discussion Paper |
---|---|
Volume | 2014-040 |
Keywords
- systemic importance
- systemic risk
- fuzzy logic
- principal component analysis
- financial stability
- macro-prudential