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

Autor o Editor
Carlos León
Javier Miguélez

The series Borradores de Economía (Working Papers on Economics) contributes to the dissemination and promotion of the work by researchers from the institution. On multiple occasions, these works have been the result of collaborative work with individuals from other national or international institutions. This series is indexed at Research Papers in Economics (RePEc)

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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.