Related papers: Densely Entangled Financial Systems
In this paper, we investigate the credit risk in the loan portfolio of banks following different business models. We develop a data-driven methodology for identifying the business models of the 365 largest European banks that is suitable…
We discuss the systemic risk implied by the interbank exposures reconstructed with the maximum entropy method. The maximum entropy method severely underestimates the risk of interbank contagion by assuming a fully connected network, while…
Financial institutions face escalating challenges in identifying high-risk customer behaviors within massive transaction networks, where fraudulent activities exploit market fragmentation and institutional boundaries. We address three…
Signed networks are frequently observed in real life with additional sign information associated with each edge, yet such information has been largely ignored in existing network models. This paper develops a unified embedding model for…
In the aftermath of the financial crisis, the growing literature on financial networks has widely documented the predictive power of topological characteristics (e.g. degree centrality measures) to explain the systemic impact or systemic…
The seniority of debt, which determines the order in which a bankrupt institution repays its debts, is an important and sometimes contentious feature of financial crises, yet its impact on system-wide stability is not well understood. We…
This paper introduces a formulation of the optimal network compression problem for financial systems. This general formulation is presented for different levels of network compression or rerouting allowed from the initial interbank network.…
We investigate the containment of epidemic spreading in networks from a normative point of view. We consider a susceptible/infected model in which agents can invest in order to reduce the contagiousness of network links. In this setting, we…
We consider a dynamical model of distress propagation on complex networks, which we apply to the study of financial contagion in networks of banks connected to each other by direct exposures. The model that we consider is an extension of…
The scope of financial systemic risk research encompasses a wide range of interbank channels and effects, including asset correlation shocks, default contagion, illiquidity contagion, and asset fire sales. This paper introduces a financial…
Failure statistics of banks in the US show that their sizes are highly unequal (ranging from a few tens of thousands to over a billion dollars) and also, they come in `waves' of intermittent activities. This motivates a self-organized…
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…
We propose an interacting particle system to model the evolution of a system of banks with mutual exposures. In this model, a bank defaults when its normalized asset value hits a lower threshold, and its default causes instantaneous losses…
We study the system of heterogeneous interbank lending and borrowing based on the relative average of log-capitalization given by the linear combination of the average within groups and the ensemble average and describe the evolution of…
In traditional banking, repeated deposit-and-lend cycles let a single dollar of reserves support multiple dollars of claims. Decentralized finance produces an analogous structure with tokens. Constructing a Token Graph of 10,200 tokens…
An interbank market lets participants pool the risk arising from the combination of illiquid investments and random withdrawals by depositors. But it also creates the potential for one bank's failure to trigger off avalanches of further…
Many complex systems present an intrinsic bipartite nature and are often described and modeled in terms of networks [1-5]. Examples include movies and actors [1, 2, 4], authors and scientific papers [6-9], email accounts and emails [10],…
Based on an empirical analysis of the network structure of the Austrian inter-bank market, we study the flow of funds through the banking network following exogenous shocks to the system. These shocks are implemented by stochastic changes…
Reconstructing patterns of interconnections from partial information is one of the most important issues in the statistical physics of complex networks. A paramount example is provided by financial networks. In fact, the spreading and…
A modern version of Monetary Circuit Theory with a particular emphasis on stochastic underpinning mechanisms is developed. It is explained how money is created by the banking system as a whole and by individual banks. The role of central…