B0576
Title: Portfolio diversification in financial banking networks
Authors: Philipp Johannes Kremer - EBS Universitaet fuer Wirtschaft und Recht (Germany) [presenting]
Sandra Paterlini - European Business School Germany (Germany)
Marcel Gorenflo - Deutsche Bundesbank (Germany)
Ben Craig - Deutsche Bundesbank (Germany)
Abstract: The events following the financial crisis of 2007-09, showed that single monetary financial institutions are often too exposed to some institutions, while lacking an adequate level of diversification. Using data on portfolio holdings at micro-level, we evaluate the risk and diversification profile of each monetary financial institution in the German banking network. We consider common macroeconomic diversification measures - i.e. Herfindahl Index and Gini Coefficient - and complement the empirical analysis with network measures derived from graph theory. Moreover, we build a diversification index to provide further insight on the effect of crises on financial portfolio holdings. By considering the period from 2007-2014, we are able to evaluate their evolution over time, to develop tailored policy recommendations and to derive early warning indicators that should help to better deal with systemic shocks and crises.
