An empirical study of the Mexican banking system’s network and its implications for systemic risk

• Published in: Journal of economic dynamics & control Vol. 40; pp. 242 - 265
• Main Authors: Martinez-Jaramillo, Serafin, Alexandrova-Kabadjova, Biliana, Bravo-Benitez, Bernardo, Solórzano-Margain, Juan Pablo
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.03.2014; Elsevier Sequoia S.A
• Subjects: Banking industry; Banking system; Empirical research; Evolution; Financial networks; Financial services; Interbank market; Latin America; Mexico; Payment systems; Risk assessment; Risk exposure; Risk management; Social networks; Studies; Systemic risk; Topological analysis; Mexico; C63; C44; Interbank market; C02; Payment systems; C01; G21; Systemic risk; Financial networks
• ISSN: 0165-1889; 1879-1743
• DOI: 10.1016/j.jedc.2014.01.009

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.