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Authority Centrality and Hub Centrality as metrics of systemic importance of financial market infrastructures

Author

Listed:
  • Carlos Eduardo León Rincón

    ()

  • Jhonatan Pérez Villalobos

    ()

Abstract

Network analysis has been applied to identify systemically important financial institutions after the 2008 financial crisis. Such applications have stressed the importance of centrality within the too-connected-to-fail concept. Yet, despite their well-known importance for financial stability, financial market infrastructures’ centrality has not been equally covered by literature. Some particularities of strictly hierarchical (i.e. directed and acyclic) networks may explain the inconvenience arising from using basic metrics of centrality, and may explain why assessing centrality has been limited to financial institutions’ case. This paper addresses the assessment of systemic importance for Colombian financial infrastructures by means of the estimation of authority centrality and hub centrality. Their particular advantage consists of assessing importance as the mutually reinforcing centrality arising from nodes pointing to other nodes (i.e. hubs) and from nodes being pointed-to by other nodes (i.e. authorities), even in the case of directed and acyclic networks. Results are valuable since they quantitatively support financial authorities’ efforts to (i) identify systemically important financial infrastructures under the too-connected-to-fail concept; (ii) focus the intensity of oversight, supervision and regulation where the infrastructure-related systemic impact is the greatest; and (iii) enhance their policy and decision-making capabilities.

Suggested Citation

  • Carlos Eduardo León Rincón & Jhonatan Pérez Villalobos, 2013. "Authority Centrality and Hub Centrality as metrics of systemic importance of financial market infrastructures," Borradores de Economia 754, Banco de la Republica de Colombia.
  • Handle: RePEc:bdr:borrec:754
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    Cited by:

    1. Carlos León & Jhonatan Pérez, 2014. "Caracterización y comparación del mercado OTC de valores en Colombia," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 16(31), pages 223-250, July-Dece.
    2. Fiedor, Paweł, 2014. "Sector strength and efficiency on developed and emerging financial markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 413(C), pages 180-188.

    More about this item

    Keywords

    Financial market infrastructures; systemic risk; authority; hub; centrality; HITS algorithm; too-connected-to-fail. Classification JEL:D85; E42; G2;

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • G2 - Financial Economics - - Financial Institutions and Services

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