Mapping systemic risk in the international banking network
AbstractSystemic risk among the network of international banking groups arises when financial stress threatens to criss-cross many national boundaries and expose imperfect international co-ordination. To assess this risk, we apply an information theoretic map equation due to Martin Rosvall and Carl Bergstrom to partition banking groups from 21 countries into modules. The resulting modular structure reflects the flow of financial stress through the network, combining nodes that are most closely related in terms of the transmission of stress. The modular structure of the international banking network has changed dramatically over the past three decades. In the late 1980s four important financial centres formed one large supercluster that was highly contagious in terms of transmission of stress within its ranks, but less contagious on a global scale. Since then the most influential modules have become significantly smaller and more broadly contagious. The analysis contributes to our understanding as to why defaults in US sub-prime mortgages had such large global implications.
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Bibliographic InfoPaper provided by Bank of England in its series Bank of England working papers with number 413.
Length: 41 pages
Date of creation: 02 Mar 2011
Date of revision:
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Networks; international banking groups; systemic risk; information theory.;
Find related papers by JEL classification:
- F20 - International Economics - - International Factor Movements and International Business - - - General
- F30 - International Economics - - International Finance - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-26 (All new papers)
- NEP-BAN-2011-03-26 (Banking)
- NEP-NET-2011-03-26 (Network Economics)
- NEP-RMG-2011-03-26 (Risk Management)
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