Peer-monitoring can help identify ‘distressed’ financial institutions, paper says

Central Bank of Colombia

An early warning system aimed at identifying institutions perceived as "risky counterparts" by their peers can help spot distress, a Colombian working paper has suggested.

In Monitoring the Unsecured Interbank Funds Market, Miguel Sarmiento, Jorge Cely and Carlos León create a system that identifies market participants that "systemically pay high prices for liquidity in this market".

"We find that financial institutions with an elevated frequency of signals tend to exhibit a net borrower

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