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The topology of cross-border exposures: Beyond the minimal spanning tree approach

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  • Spelta, Alessandro
  • Araújo, Tanya

Abstract

The recent financial crisis has stressed the need to understand financial systems as networks of interdependent countries, where cross-border financial linkages play the fundamental role. It has also been emphasized that the relevance of these networks relies on the representation of changes follow on the occurrence of stress events. Here, from series of interbank liabilities and claims over different time periods, we have developed networks of positions (net claims) between countries. Besides the Minimal Spanning Tree analysis of the time-constrained networks, a coefficient of residuality is defined to capture the structural evolution of the network of cross-border financial linkages. Because some structural changes seem to be related to the role that countries play in the financial context, networks of debtor and creditor countries are also developed. Empirical results allows to relate the network structure that emerges in the last years to the globally turbulent period that has characterized financial systems since the latest nineties. The residuality coefficient highlights an important modification acting in the financial linkages across countries in the period 1997–2011, and situates the recent financial crises as replica of a larger structural change going on since 1997.

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Bibliographic Info

Article provided by Elsevier in its journal Physica A: Statistical Mechanics and its Applications.

Volume (Year): 391 (2012)
Issue (Month): 22 ()
Pages: 5572-5583

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Handle: RePEc:eee:phsmap:v:391:y:2012:i:22:p:5572-5583

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Web page: http://www.journals.elsevier.com/physica-a-statistical-mechpplications/

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Keywords: Cross-border exposures; Interbank networks; Financial linkages; Minimal spanning tree; Financial crises;

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References

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  1. Kimmo Soramaki & Morten L. Bech & Jeffrey Arnold & Robert J. Glass & Walter Beyeler, 2006. "The topology of interbank payment flows," Staff Reports 243, Federal Reserve Bank of New York.
  2. de Masi, G. & Iori, G. & Caldarelli, G., 2006. "A fitness model for the Italian interbank money market," Working Papers 06/08, Department of Economics, City University London.
  3. Rosario N. Mantegna, 1998. "Hierarchical Structure in Financial Markets," Papers cond-mat/9802256, arXiv.org.
  4. Vilela Mendes, R. & Araújo, Tanya & Louçã, Francisco, 2003. "Reconstructing an economic space from a market metric," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 323(C), pages 635-650.
  5. Tanya Araujo & Francisco Louçã, 2007. "The Seismography of Crashes in Financial Markets," Working Papers Department of Economics 2007/05, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  6. Garratt, Rodney & Mahadeva, Lavan & Svirydzenka, Katsiaryna, 2011. "Mapping systemic risk in the international banking network," Bank of England working papers 413, Bank of England.
  7. Javier A. Reyes & Camelia Minoiu, 2011. "A Network Analysis of Global Banking:1978-2009," IMF Working Papers 11/74, International Monetary Fund.
  8. Nier, Erlend & Yang, Jing & Yorulmazer, Tanju & Alentorn, Amadeo, 2008. "Network models and financial stability," Bank of England working papers 346, Bank of England.
  9. Tanya Araújo & R. Vilela Mendes, 2001. "Function and form in networks of interacting agents," Working Papers Department of Economics 2001/03, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
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Cited by:
  1. Alessandro Spelta & Tanya Araújo, 2012. "Interlinkages and structural changes in cross-border liabilities: a network approach," Quaderni di Dipartimento 181, University of Pavia, Department of Economics and Quantitative Methods.
  2. Araújo, Tanya & Spelta, Alessandro, 2014. "Structural changes in cross-border liabilities: A multidimensional approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 394(C), pages 277-287.
  3. Dias, João, 2013. "Spanning trees and the Eurozone crisis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(23), pages 5974-5984.
  4. Papadimitriou, Theophilos & Gogas, Periklis & Tabak, Benjamin M., 2013. "Complex networks and banking systems supervision," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 392(19), pages 4429-4434.
  5. Alessandro Spelta & Tanya Ara\'ujo, 2012. "Interlinkages and structural changes in cross-border liabilities: a network approach," Papers 1205.5675, arXiv.org.
  6. Tanya Araùjo & Alessandro Spelta, 2013. "Structural changes in cross-border liabilities: a multidimensional approach," DEM Working Papers Series 050, University of Pavia, Department of Economics and Management.

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