Abstract
With the aim to measure and monitor systemic risk, we present some topological metrics for the interbank exposures and the payments system networks. The evolution of such networks is analyzed, we draw important conclusions from the systemic risk's perspective and propose a measure of interconnectedness. Additionally, we suggest non-topological measures to describe individual behavior of banks in both networks. The main findings of this paper are: the structures of the payments and exposures networks are different (in terms of connectivity); the topology of the exposures network changed after the collapse of Lehman Brothers, whereas the structure of the payments network does not; the proposed measure of interconnectedness can be used to determine the importance of a bank in terms of connectivity. Finally, we found that interconnectedness of a bank is not necessarily related with its assets size but it is linked to the contagion it might cause.
Highlights
Despite the importance of systemic risk in the international financial regulatory arena, authorities have failed to reach an agreement on a common widely accepted definition for this concept
The data obtained to build the payment system network is relatively easier to access by the authorities and regulators, as generally the central banks are in charge of the management of Large Value Payment Systems
To differentiate between inner and outer strength is important, as we are interested in determining which bank is lending the most in the network. Such differentiation is important in the context of systemic risk because a bank can play a specific role in the network; that is, a bank can be very important as a lender or as a borrower in the interbank exposures network and it is important from the regulators’ perspective as the failure of such institutions would have different repercussions depending on the role played in the network
Summary
Despite the importance of systemic risk in the international financial regulatory arena, authorities have failed to reach an agreement on a common widely accepted definition for this concept. The data obtained to build the payment system network is relatively easier to access by the authorities and regulators, as generally the central banks are in charge of the management of Large Value Payment Systems This is not the case for the interbank exposures network. Some relevant findings are reported in this work on dynamic aspects of two well recognized networks for the Mexican banking system: the payment system flows and the interbank exposures networks. In this work we found that the interbank exposures network posses different connectivity to the payments system flows network, with the latter being more intensively connected. The proposed measure of interconnectedness captures the dynamics of the connectivity relevance of a node in terms of low/high value payments or as lender/borrower in the payments system or the interbank exposures network respectively.
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