Common asset holdings and systemic vulnerability across multiple types of financial institution

Abstract

One way systemic risk can crystallise is through fire sales of commonly held assets. This paper examines fire sale vulnerabilities across different types of financial institution, including non-banks. We undertake an in-depth empirical analysis of the interconnections between European open-ended investment funds and UK regulated banks and insurance companies through their common asset holdings. This research is the first to combine regulatory holding-level asset data for banks and insurers with private data for open-ended investment funds. Our results show the existence of a significant overlap between the equity and debt portfolios of different types of financial institution. We characterise financial institutions of different types in terms of their concentration profile, portfolio similarity and vulnerability to fire sales, providing evidence for the existence of a price-mediated channel of contagion between banks, insurance companies and investments funds.