Assessing Systemic Importance With a Fuzzy Logic Inference System

Carlos León, Clara Machado and Andrés Murcia

Intelligent Systems in Accounting, Finance and Management, 2016, vol. 23, issue 1-2, 121-153

Abstract: Three metrics are designed to assess Colombian financial institutions' size, connectedness and non‐substitutability as the main drivers of systemic importance: (i) centrality as net borrower in the money market network; (ii) centrality as payments originator in the large‐value payment system network; and (iii) asset value of core financial services. An aggregated systemic importance index is calculated based on expert knowledge by using a fuzzy logic inference system. We use principal component analysis to calculate a benchmark index for comparison purposes. Overall similarities between both indexes put forward that expert knowledge aggregation is consistent with that based on a purely quantitative standard approach. Specific non‐negligible differences concur with the nonlinear features of an approach whose intention is to replicate human reasoning. Both indexes are complementary and provide a comprehensive relative assessment of each financial institution's systemic importance in the Colombian case, in which the choice of metrics pursues the macroprudential perspective of financial stability. Copyright © 2015 John Wiley & Sons, Ltd.

Date: 2016
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