Structural distortions in the Euro interbank market: The role of 'key players' during the recent market turmoil

We propose a new method for assessing agents' influence in financial network structures, which takes into consideration the intensity of interactions. A distinctive feature of this approach is that it considers not only direct interactions of agents of the first level and indirect interactions of the second level, but also long-range indirect interactions. At the same time we take into account the attributes of agents as well as the possibility of impact to a single agent fro...

We use bank-level balance sheet data from 2005 to 2010 to study interactions within the banking system of five emerging countries: Argentina, Brazil, Mexico, South Africa, and Taiwan. For each country we construct a financial network based on the leverage ratio dependence between each pair of banks, and find results that are comparable across countries. Banks present a variety of leverage ratio behaviors. This leverage diversity produces financial networks that exhibit a modu...

An analysis of the Japanese credit market in 2004 between banks and quoted firms is done in this paper using the tools of the networks theory. It can be pointed out that: (i) a backbone of the credit channel emerges, where some links play a crucial role; (ii) big banks privilege long-term contracts; the "minimal spanning trees" (iii) disclose a highly hierarchical backbone, where the central positions are occupied by the largest banks, and emphasize (iv) a strong geographical...

When banks extend loans to each other, they generate a negative externality in the form of systemic risk. They create a network of interbank exposures by which they expose other banks to potential insolvency cascades. In this paper, we show how a regulator can use information about the financial network to devise a transaction-specific tax based on a network centrality measure that captures systemic importance. Since different transactions have different impact on creating sy...

This paper studies the network structure and fragmentation of the Argentinean interbank market. Both the unsecured (CALL) and the secured (REPO) markets are examined, applying complex network analysis. Results indicate that, although the secured market has less participants, its nodes are more densely connected than in the unsecured market. The interrelationships in the unsecured market are less stable, making its structure more volatile and vulnerable to negative shocks. The...

In recent years, methods from network science are gaining rapidly interest in economics and finance. A reason for this is that in a globalized world the interconnectedness among economic and financial entities are crucial to understand and networks provide a natural framework for representing and studying such systems. In this paper, we are surveying the use of networks and network-based methods for studying economy related questions. We start with a brief overview of graph t...

The DebtRank algorithm has been increasingly investigated as a method to estimate the impact of shocks in financial networks, as it overcomes the limitations of the traditional default-cascade approaches. Here we formulate a dynamical "microscopic" theory of instability for financial networks by iterating balance sheet identities of individual banks and by assuming a simple rule for the transfer of shocks from borrowers to lenders. By doing so, we generalise the DebtRank form...

The global financial system has become highly connected and complex. Has been proven in practice that existing models, measures and reports of financial risk fail to capture some important systemic dimensions. Only lately, advisory boards have been established in high level and regulations are directly targeted to systemic risk. In the same direction, a growing number of researchers employ network analysis to model systemic risk in financial networks. Current approaches are c...

Throughout economic history, the global economy has experienced recurring crises. The persistent recurrence of such economic crises calls for an understanding of their generic features rather than treating them as singular events. The global economic system is a highly complex system and can best be viewed in terms of a network of interacting macroeconomic agents. In this regard, from the perspective of collective network dynamics, here we explore how the topology of global m...

The interbank market has a natural multiplex network representation. We employ a unique database of supervisory reports of Italian banks to the Banca d'Italia that includes all bilateral exposures broken down by maturity and by the secured and unsecured nature of the contract. We find that layers have different topological properties and persistence over time. The presence of a link in a layer is not a good predictor of the presence of the same link in other layers. Maximum e...