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Systemic Risk in Financial Networks: A Survey

Author

Listed:
  • Matthew O. Jackson

    (Department of Economics, Stanford University, Stanford, California 94305, USA)

  • Agathe Pernoud

    (Department of Economics, Stanford University, Stanford, California 94305, USA)

Abstract

We provide an overview of the relationship between financial networks and systemic risk. We present a taxonomy of different types of systemic risk, differentiating between direct externalities between financial organizations (e.g., defaults, correlated portfolios, fire sales), and perceptions and feedback effects (e.g., bank runs, credit freezes). We also discuss optimal regulation and bailouts, measurements of systemic risk and financial centrality, choices by banks regarding their portfolios and partnerships, and the changing nature of financial networks.

Suggested Citation

  • Matthew O. Jackson & Agathe Pernoud, 2021. "Systemic Risk in Financial Networks: A Survey," Annual Review of Economics, Annual Reviews, vol. 13(1), pages 171-202, August.
    • Handle: RePEc:anr:reveco:v:13:y:2021:p:171-202
    DOI: 10.1146/annurev-economics-083120-111540
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    More about this item

    Keywords

    financial networks; markets; systemic risk; financial crises; correlated portfolios; networks; banks; default risk; credit freeze; bank runs; shadow banking; supply chains; compression; financial bubbles;
    All these keywords.

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • F15 - International Economics - - Trade - - - Economic Integration
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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