Securities cross-holding in the Colombian financial system: a topological approach
Studies in Economics and Finance
ISSN: 1086-7376
Article publication date: 15 February 2021
Issue publication date: 27 July 2021
Abstract
Purpose
From a financial stability viewpoint, this paper aims to study cyclical interdependencies arising from the cross-holding of securities in the Colombian financial system.
Design/methodology/approach
Cross-holding of securities in financial systems occurs when two financial institutions hold securities issued by each other or when more than two financial institutions hold securities issued by each other in a circular structure. Securities cross-holding is key for financial stability because of potential contagion arising from cyclical interdependencies in the connective architecture of financial systems. The presence of cyclical interdependencies is studied based on network analysis. The data set is a multilayer network that comprises bonds, certificates of deposit and equity issued and held by Colombian financial institutions from 2016 to 2019.
Findings
Results show that the extent of securities’ cyclical interdependencies is particularly low and stable – even when cross-holding across different types of securities is considered.
Research limitations/implications
The monetary value of exposures and their size with respect to financial institutions’ balance sheets are not considered. Studying the impact on the financial system’s solvency is a compulsory research path.
Practical implications
The network topology suggests that increased potential contagion by cyclical interdependencies and feedback effects from securities cross-holding is rather limited.
Originality/value
To the best of the authors’ knowledge, this is the first time that cyclical interdependencies arising from the securities cross-holding are studied. From a financial stability perspective, the methodology is general and promising for monitoring and analytical purposes.
Keywords
Acknowledgements
Opinions and statements in this article are the sole responsibility of the authors. We thank Clara Machado, Serafín Martínez and Wilmar Cabrera for their comments and suggestions to an early version of the manuscript. We thank the reviewers and the editorial team for their contributive work. This research did not receive any specific grant from funding agencies in the public, commercial or not-for-profit sectors.
Declaration of interest: none.
Citation
León, C. and Miguélez, J. (2021), "Securities cross-holding in the Colombian financial system: a topological approach", Studies in Economics and Finance, Vol. 38 No. 4, pp. 786-806. https://doi.org/10.1108/SEF-10-2020-0398
Publisher
:Emerald Publishing Limited
Copyright © 2021, Emerald Publishing Limited