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Mapping systemic risk in the international banking network

Author

Listed:
  • Garratt, Rodney

    () (University of California)

  • Mahadeva, Lavan

    () (Bank of England)

  • Svirydzenka, Katsiaryna

    () (Graduate Institute, Geneva)

Abstract

Systemic 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.

Suggested Citation

  • Garratt, Rodney & Mahadeva, Lavan & Svirydzenka, Katsiaryna, 2011. "Mapping systemic risk in the international banking network," Bank of England working papers 413, Bank of England.
  • Handle: RePEc:boe:boeewp:0413
    as

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    File URL: https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2011/mapping-systemic-risk-in-the-international-banking-network.pdf
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    References listed on IDEAS

    as
    1. Stefano Schiavo & Javier Reyes & Giorgio Fagiolo, 2010. "International trade and financial integration: a weighted network analysis," Quantitative Finance, Taylor & Francis Journals, vol. 10(4), pages 389-399.
    2. Kaminsky, Graciela L. & Reinhart, Carmen M., 2000. "On crises, contagion, and confusion," Journal of International Economics, Elsevier, vol. 51(1), pages 145-168, June.
    3. Joshua Coval & Jakub Jurek & Erik Stafford, 2009. "The Economics of Structured Finance," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 3-25, Winter.
    4. Stijn Claessens & Luc Laeven & Deniz O Igan & Giovanni Dell'Ariccia, 2010. "Lessons and Policy Implications from the Global Financial Crisis," IMF Working Papers 10/44, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Networks; international banking groups; systemic risk; information theory.;

    JEL classification:

    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • F30 - International Economics - - International Finance - - - General

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