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Contagion Flow Through Banking Networks

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Author Info
Michael Boss
Martin Summer
Stefan Thurner

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Abstract

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 in variables like interest rates, exchange rates, etc. We demonstrate that the system is relatively stable in the sence that defaults of individual banks are unlikely to spread over the entire network. We study the contagion impact of all individual banks, meaning the number of banks which are driven into insolvency as a result of a single bank's default. We show that the vertex betweenness of individual banks is linearly related to their contagion impact.

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File URL: http://arxiv.org/abs/cond-mat/0403167
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File URL: http://arxiv.org/pdf/cond-mat/0403167
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Publisher Info
Paper provided by arXiv.org in its series Quantitative Finance Papers with number cond-mat/0403167.

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Date of creation: Mar 2004
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Handle: RePEc:arx:papers:cond-mat/0403167

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  1. Martin Summer, 2003. "Banking Regulation and Systemic Risk," Open Economies Review, Springer, vol. 14(1), pages 43-70, January. [Downloadable!] (restricted)
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  2. Martin Summer & Helmut Elsinger & Alfred Lehar, 2002. "Risk Assessment for Banking Systems," Working Papers 79, Oesterreichische Nationalbank (Austrian Central Bank). [Downloadable!]
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This page was last updated on 2010-1-7.

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