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Securities cross-holding in the Colombian financial system: A topological approach

Author

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  • Carlos León

    (Banco de la República de Colombia)

  • Javier Miguélez

    (Banco de la República de Colombia)

Abstract

Cross-holding of securities in financial systems occurs when i) two financial institutions hold securities issued by each other or ii) more than two financial institutions hold securities issued by each other in a circular structure. Securities cross-holding is relevant for financial stability because they may further propagate and amplify shocks, therefore increasing the potential for contagion among interconnected financial institutions. We use a unique dataset of securities issued and held by financial institutions to measure the extent of securities cross-holding in Colombia. The dataset comprises bonds, certificates of deposit, and equity issued and held (in proprietary position) by financial institutions from 2016 to 2019. Results show that the extent of securities cross-holding in the Colombian financial system is particularly low—even when cross-holding across different types of securities is considered. The network topology suggests that potential contagion from securities cross-holding is rather limited. **** RESUMEN: Las posiciones cruzadas en los sistemas financieros suceden cuando i) dos instituciones financieras tienen títulos valores emitidos por la otra o ii) dos o más instituciones financieras tienen títulos valores emitidos por las otras en una estructura circular. Las posiciones cruzadas en títulos valores son importantes para la estabilidad financiera porque pueden contribuir a la propagacióón y amplificación de choques, y así incrementar el potencial de contagio entre instituciones financieras interconectadas. Para medir la presencia de posiciones cruzadas de títulos valores en Colombia utilizamos una base de datos de características excepcionales. Esta base de datos contiene los bonos, certificados de depósito y acciones emitidos y en posición propia de las instituciones financieras desde 2016 hasta 2019. Los resultados muestran que las posiciones cruzadas de títulos valores en el sistema financiero colombiano son particularmente escasas—incluso cuando se considera la posibilidad de posiciones cruzadas entre títulos valores de diferente tipo. La topología de red sugiere que el potencial de contagio por posiciones cruzadas en títulos valores es limitado.

Suggested Citation

  • Carlos León & Javier Miguélez, 2020. "Securities cross-holding in the Colombian financial system: A topological approach," Borradores de Economia 1134, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:1134
    DOI: https://doi.org/10.32468/be.1134
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    More about this item

    Keywords

    Financial stability; contagion; networks; reciprocity; transitivity; securities; estabilidad financiera; contagio; redes; reciprocidad; transitividad; títulos valores;
    All these keywords.

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G2 - Financial Economics - - Financial Institutions and Services

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