We estimate two standard spatial econometric models in order to study the cost of collateralized borrowing among Colombian financial institutions, and its relationship with traditional determinants (leverage, size, and borrowing concentration), and with the observed linkages among financial institutions (spatial variables). Our main findings indicate that (i) the selected models are able to capture the extent and significance to which linkages matter for money market's liquidity pricing in the form of a spatial dependence parameter; (ii) spatial effects play a significant role in the pricing of liquidity in the collateralized money market; (iii) direct and spill-over effects from financial institutions’ size and the spatially lagged value of financial leverage and borrowing concentration most significantly determine the cost of collateralized borrowing; (iv) traditional determinants are of low explanatory power by themselves. Concurrent with contemporary lending relationships literature, our results emphasize the importance of connectedness among financial institutions, and are essential in the context of a macro-prudential perspective of financial stability and systemic risk.

We examine the connective architecture of the main Colombian payment and settlement systems in order to update what we know about local financial networks, and to elaborate on the main consequences for financial stability. Evidence suggests that local financial networks display a modular (i.e. clustered) scale-free (i.e. inhomogeneous) architecture. Results concur with other real-world networks, and propose new insights and challenges for authorities contributing to financial stability. For instance, (i) traditional reductionist assumptions for modeling financial systems (e.g. homogeneity) may be particularly misleading; (ii) the observed modular scale-free architecture favors robustness and resilience; (iii) the generating process of such architecture overlaps with literature on trading relationships; (iv) carelessly reducing inhomogeneity in financial systems may backfire in the form of a less robust and less resilient financial system; and (v) financial authorities should understand and take advantage of the existing architecture by means of designing and implementing macro-prudential regulation and system-calibrated requirements.

We model the allocation of central bank liquidity among the participants of the interbank market by using network analysis’ metrics. Our analytical framework considers that a super-spreader simultaneously excels at borrowing and lending central bank's liquidity for the whole network, as measured by financial institutions’ hub centrality and authority centrality, respectively. Evidence suggests that the Colombian interbank funds market exhibits an inhomogeneous and hierarchical network structure, akin to a core-periphery organization, in which a few financial institutions fulfill the role of central bank's liquidity super-spreaders. Our results concur with evidence from other interbank markets and other financial networks regarding the flaws of traditional direct financial contagion models based on homogeneous and non-hierarchical networks. Also, concurrent with literature on lending relationships in interbank markets, we confirm that the probability of being a super-spreader is mainly determined by financial institutions’ size, but leverage and lending concentration as well. We provide additional elements for the implementation of monetary policy and for safeguarding financial stability.

An interdependent network coupling financial institutions’ multiplex (i.e. multi-layer) and financial market infrastructures’ single-layer networks gives a more accurate picture of a financial system's true connective architecture. We examine and compare the main properties of Colombian multiplex and interdependent financial networks. Coupling financial institutions’ multiplex networks with financial market infrastructures’ networks removes modularity, which augments financial instability because the network then fails to isolate feedbacks and limit cascades while it retains its robust-yet-fragile features. Moreover, our analysis highlights the relevance of infrastructure-related systemic risk, corresponding to the effects caused by the improper functioning of financial market infrastructures or by financial market infrastructures acting as conduits for contagion.