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Systemic Risk: a Network Approach

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Abstract

We propose a new measure of systemic risk based on interconnectedness, defined as the level of direct and indirect links between financial institutions in a correlation-based network. Deriving interconnectedness in terms of risk, we empirically show that within a financial network, indirect links are strengthened during systemic events. The relevance of our measure is illustrated at both local and global levels. Our framework offers policymakers a useful toolbox for exploring the real-time topology of the complex structure of dependencies in financial systems and for measuring the consequences of regulatory decisions.

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  • Jean-Baptiste Hasse, 2020. "Systemic Risk: a Network Approach," AMSE Working Papers 2025, Aix-Marseille School of Economics, France.
  • Handle: RePEc:aim:wpaimx:2025
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    More about this item

    Keywords

    financial networks; interconnectedness; systemic risk; spillover;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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