Abstract
Financial institutions are highly interconnected. Consequently, they form complex systems which are inherently unstable. This paper reviews empirical research on the instability of complex interbank systems. Three network approaches are distinguished: descriptions of interbank exposure networks; simulation and modelling; and the development of new metrics to describe network topology and individual banks’ relative importance. The paper concludes by inferring policy implications and priorities for future research.
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Notes
A walk is a traversal of nodes along links without any constraints. In contrast a trail is a walk where a given link is not visited twice and a path is a walk where a given node is not visited twice.
CLS is the world’s largest settlement system, settling on peak days in 2013 almost $9 trillion worth of foreign exchange transactions on the books of 17 central banks (and currencies).
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Langfield, S., Soramäki, K. Interbank Exposure Networks. Comput Econ 47, 3–17 (2016). https://doi.org/10.1007/s10614-014-9443-x
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DOI: https://doi.org/10.1007/s10614-014-9443-x