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International transmission of shocks and fragility of a bank network

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  • Feng, Xiaobing
  • Jo, Woo Seong
  • Kim, Beom Jun

Abstract

The weighted and directed network of countries based on the number of overseas banks is analyzed in terms of its fragility to the banking crisis of one country. We use two different models to describe transmission of shocks, one local and the other global. Depending on the original source of the crisis, the overall size of crisis impacts is found to differ country by country. For the two-step local spreading model, it is revealed that the scale of the first impact is determined by the out-strength, the total number of overseas branches of the country at the origin of the crisis, while the second impact becomes more serious if the in-strength at the origin is increased. For the global spreading model, some countries named “triggers” are found to play important roles in shock transmission, and the importance of the feed-forward-loop mechanism is pointed out. We also discuss practical policy implications of the present work.

Suggested Citation

  • Feng, Xiaobing & Jo, Woo Seong & Kim, Beom Jun, 2014. "International transmission of shocks and fragility of a bank network," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 403(C), pages 120-129.
    • Handle: RePEc:eee:phsmap:v:403:y:2014:i:c:p:120-129
    DOI: 10.1016/j.physa.2014.02.030
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    1. AfDB AfDB, 2010. "Working Paper Series – Author Guidelines," Working Paper Series 357, African Development Bank.
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    Keywords

    Bank network; Financial crisis;

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