Financial Stability and Interacting Networks of Financial Institutions and Market Infrastructures
European Banking Center Discussion Paper Series No. 2014-011
CentER Discussion Paper Series No. 2014-057
40 Pages Posted: 30 Sep 2014 Last revised: 13 Oct 2014
There are 2 versions of this paper
Financial Stability and Interacting Networks of Financial Institutions and Market Infrastructures
Financial Stability and Interacting Networks of Financial Institutions and Market Infrastructures
Date Written: September 29, 2014
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.
Keywords: multiplex networks, interacting networks, financial stability, contagion, financial market infrastructures
JEL Classification: D85, D53, G20, L14
Suggested Citation: Suggested Citation