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Contagion Flow Through Banking Networks

  • Michael Boss
  • Martin Summer
  • Stefan Thurner

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/pdf/cond-mat/0403167
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Paper provided by arXiv.org in its series 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.
  2. Helmut Elsinger & Alfred Lehar & Martin Summer, 2002. "Risk Assessment for Banking Systems," Working Papers 79, Oesterreichische Nationalbank (Austrian Central Bank).
  3. Michael Boss & Helmut Elsinger & Martin Summer & Stefan Thurner, 2004. "Network topology of the interbank market," Quantitative Finance, Taylor & Francis Journals, vol. 4(6), pages 677-684.
  4. Stefan Thurner & Rudolf Hanel & Stefan Pichler, 2003. "Risk trading, network topology and banking regulation," Quantitative Finance, Taylor & Francis Journals, vol. 3(4), pages 306-319.
  5. Dorogovtsev, S.N. & Mendes, J.F.F., 2003. "Evolution of Networks: From Biological Nets to the Internet and WWW," OUP Catalogue, Oxford University Press, number 9780198515906.
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