ECB paper looks at eurozone banks’ exposure to securities

A working paper published by the European Central Bank presents a highly detailed analysis of the interaction between the eurozone’s banks and its securities markets.

In Mapping bank securities across euro area sectors: comparing funding and exposure networks, Anne-Caroline Hüser and Christoffer Kok use what they call a “multilayer network approach”. The authors argue that the level of granularity in their study is “crucial for macro-prudential policy”.

They combine three large databases on the banking sector’s holdings of securities. They split the eurozone’s securities markets into several “multi-layer networks”, differentiated by seniority, maturity and whether transactions are securitised or covered.

The authors then construct a disaggregated view of each network. This view, they say, “always yields additional information, which bolsters the case for a multilayer perspective on interbank networks”. 

The authors find there are “marked differences” in banks’ exposure to different financial sectors and different eurozone countries.

The network approach can be useful for analysing the contagion of financial crises, the authors argue. They analyse the exposure of national banking sectors to other sectors, which they say allows them to “quantify in an intuitive way the vulnerability of national banking sectors”.