Contagion in financial networks

Prasanna Gai1,2, Sujit Kapadia1
1Bank of England, Threadneedle Street, London EC2R 8AH, UK
2Crawford School of Economics and Government, Australian National University, Canberra, ACT 0200, Australia

Tóm tắt

This paper develops an analytical model of contagion in financial networks with arbitrary structure. We explore how the probability and potential impact of contagion is influenced by aggregate and idiosyncratic shocks, changes in network structure and asset market liquidity. Our findings suggest that financial systems exhibit arobust-yet-fragiletendency: while the probability of contagion may be low, the effects can be extremely widespread when problems occur. And we suggest why the resilience of the system in withstanding fairly large shocks prior to 2007 should not have been taken as a reliable guide to its future robustness.

Từ khóa


Tài liệu tham khảo

10.1038/35019019

Allen F., 2009, The network challenge:strategy, profit, and risk in an interlinked world

10.1086/262109

Anderson R., 1991, Infectious diseases of humans:dynamics and control, 10.1093/oso/9780198545996.001.0001

10.1016/0378-4266(95)00029-1

Bank of England., 2007, Financial stability report, 21, April

10.1080/14697680400020325

10.1111/j.1540-6261.2007.01275.x

10.1103/PhysRevLett.85.5468

10.1016/S0022-1996(99)00038-0

Castiglionesi F.& Navarro N.. 2007 Optimal fragile financial networks. Tilburg University Discussion Paper no. 2007-100. Tilburg The Netherlands Tilburg University.

10.1162/jeea.2005.3.2-3.556

10.1287/mnsc.1070.0715

Craig B.& von Peter G. Inpress Interbank tiering and money center banks. Cleveland OH:Federal Reserve Bank of Cleveland.

Davis M., 2001, Mastering risk volume. 2. Applications

Degryse H., 2007, Interbank exposures:an empirical examination of systemic risk in the Belgian banking system, Int. J. Cent. Bank., 3, 123

10.1016/j.jbankfin.2006.10.023

10.1287/mnsc.47.2.236.9835

10.1287/mnsc.1060.0531

10.1086/229693

10.2307/2601198

Frey R.& Backhaus J.. 2003 Interacting defaults and counterparty risk:a Markovian approach. Leipzig Germany University of Leipzig.

10.1353/mcb.2003.0004

10.1257/aer.97.2.99

10.1111/j.1756-2171.2009.00075.x

10.1016/S0378-4266(03)00129-8

10.1016/j.jbankfin.2003.11.002

Grimmett G., 1986, Probability:an introduction

Haldane A.. 2009 Rethinking the financial network. Speech delivered at the Financial Student Association Amsterdam The Netherlands April 2009.

10.1016/j.jebo.2004.07.018

10.2202/1935-1704.1341

10.1257/aer.97.2.92

10.1111/j.1540-6261.1991.tb04616.x

10.1111/1540-6261.00441

10.1111/0022-1082.00373

10.1111/j.1540-6261.2005.00821.x

10.1098/rsif.2009.0359

10.1038/451893a

10.1090/S0273-0979-06-01148-7

Mistrulli P.. 2005 Interbank lending patterns and financial contagion. Rome Italy:Banca d’Italia.

Mistrulli P.. 2007 Assessing financial contagion in the interbank market:maximum entropy versus observed interbank lending patterns. Bank of Italy Working Paper no. 641. Rome Italy:Banca d’Italia.

10.1111/1467-937X.00121

10.1103/PhysRevE.66.016128

Newman M., 2003, Handbook of graphs and networks

10.1103/PhysRevE.64.026118

10.1016/j.jedc.2007.01.014

Rajan R., 2005, In Proc. Federal Reserve Bank of Kansas City Economic Symp. on the Greenspan Era:Lessons for the Future, Jackson Hole, WY, 25–27 August 2005

10.1162/1542476042813887

10.1016/j.jfi.2008.02.003

10.1016/j.physa.2006.11.093

10.1038/35065725

Upper C.. 2007 Using counterfactual simulations to assess the danger of contagion in interbank markets. Bank for International Settlements Working Paper no. 234. Basle Switzerland:Bank for International Settlements.

10.1016/j.euroecorev.2003.12.009

van Lelyveld I., 2006, Interbank contagion in the Dutch banking sector:a sensitivity analysis, Int. J. Cent. Bank., 2, 99

Watts D., 2002, Proc. Natl Acad. Sci. USA, 5766

Wells S.. 2004 Financial interlinkages in the United Kingdom’s interbank market and the risk of contagion. Bank of England Working Paper no. 230. London UK Bank of England.

Wilf H., 1994, Generating functionology, 2