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Interbank relationship lending in Colombia

Author

Listed:
  • Carlos León

    (Banco de la República de Colombia)

  • Javier Miguélez

    (Banco de la República de Colombia)

Abstract

Stable and strong lending relations among financial institutions have been credited as the mainstay of interbank markets and financial stability. They are an indicator of trust among financial institutions. From a network perspective, we measure how stable relations are in the Colombian unsecured interbank lending market. We calculate the survival ratio of interbank networks, which corresponds to the fraction of linkages found in consecutive interbank lending networks. From January 2014 to September 2019, on average, about 58 per cent of linkages survive from one day to the next. About 36, 28, and 22 per cent of linkages survive during a 5-, 10-, and 20-day period, respectively. Regarding the strength of lending relations, results are robust to the exclusion of low-value linkages and non-banking institutions. A non-parametric test discards randomness as a plausible source of observed survival ratios. Preliminary examination of survival ratios during the first weeks of the financial turmoil caused by Covid-19 pandemic and falling oil prices suggests that trust in the interbank market was not seriously affected. Therefore, it is fair to conclude that stable and strong interbank lending relations exist in the Colombian market. From a financial stability perspective, the survival ratio may aid financial authorities in their quest for monitoring financial institutions’ willingness to exchange funds among them. **** RESUMEN: Las relaciones estables y fuertes entre las instituciones financieras son consideradas como fundamentales para los mercados interbancarios y la estabilidad financiera. Estas relaciones son un indicador de confianza entre instituciones financieras. En este artículo medimos cuán estables son las relaciones en el mercado interbancario colombiano no colateralizado desde una perspectiva de análisis de redes. Para tal fin calculamos el coeficiente de sobrevivencia de las redes interbancarias, el cual se obtiene como la fracción de conexiones que se encuentran en redes de préstamo interbancario de manera consecutiva. Desde enero de 2014 hasta septiembre de 2019, encontramos que en promedio el 58 por ciento de las conexiones sobrevive de un día para otro. Para periodos de 5, 10 y 20 días este coeficiente se reduce a 36, 28 y 22 por ciento, respectivamente. Los resultados son robustos a la exclusión de conexiones de bajo monto y de instituciones no bancarias. Una prueba no paramétrica demuestra que los coeficientes de sobreviviencia obtenidos no son atribuibles a la aleatoriedad. Una revisión preliminar de los coeficientes de sobrevivencia durante las primeras semanas de estrés relacionado con la pandemia de Covid-19 y la caída de los precios del petróleo sugiere que la confianza en el mercado interbancario no resultó afectada seriamente. En consecuencia, puede concluirse que existen relaciones de préstamo interbancario en el mercado colombiano. Desde una perspectiva de estabilidad financiera, los coeficientes de sobrevivencia pueden ayudar a que las autoridades monitoreen la voluntad de intercambio de liquidez entre instituciones financieras.

Suggested Citation

  • Carlos León & Javier Miguélez, 2020. "Interbank relationship lending in Colombia," Borradores de Economia 1118, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:1118
    DOI: https://doi.org/10.32468/be.1118
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    References listed on IDEAS

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    More about this item

    Keywords

    Interbank; lending; survival; linkage; network; interbancario; préstamo; sobrevivencia; conexiones; redes;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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