Multiplex financial networks: revealing the level of Interconnectedness in the Financial System

Autor: Serafín Martínez Jaramillo
Coautor(es): Alejandro de la Concha Duarte, Christian Carmona Perez
The network approach has been useful for the study of systemic risk; however, most of the studies have ignored the true level of interconnectedness in the financial system. In this work we show the missing part on the study of interconnectedness of the banking system. Complexity in modern financial systems has been an important subject of study as well as the so called high degree of interconnectedness between nancial institutions. However, we still lack the appropriate metrics to describe such complexity and the data avail able in order to describe it is still scarce. In addition, most of the focus on the subject of interconnectedness has been on a single type of network: interbank (exposures) networks. In order to have a more complete view of the complexity in the Mexican banking system, we use a comprehensive set of market interactions that include transactions in the securities market, repo transactions, payment system flows, interbank loans, cross holding of securities, foreign exchange exposures and derivatives exposures. This the first attempt, to the best of our knowledge, to describe so comprehensively the complexity and interconnectedness in a banking system. By resorting to the multiplex paradigm we are able to identify the most important institutions in the whole structure, the most relevant layer (in structural terms) of the multiplex and the community structure of the Mexican banking system.