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The spread of a financial virus through Europe and beyond

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  • Olena Kostylenko
  • Helena Sofia Rodrigues
  • Delfim F. M. Torres

Abstract

We analyse the importance of international relations between countries on the financial stability. The contagion effect in the network is tested by implementing an epidemiological model, comprising a number of European countries and using bilateral data on foreign claims between them. Banking statistics of consolidated foreign claims on ultimate risk bases, obtained from the Banks of International Settlements, allow us to measure the exposure of contagion spreading from a particular country to the other national banking systems. We show that the financial system of some countries, experiencing the debt crisis, is a source of global systemic risk because they threaten the stability of a larger system, being a global threat to the intoxication of the world economy and resulting in what we call a `financial virus'. Illustrative simulations were done in the NetLogo multi-agent programmable modelling environment and in MATLAB.

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  • Olena Kostylenko & Helena Sofia Rodrigues & Delfim F. M. Torres, 2019. "The spread of a financial virus through Europe and beyond," Papers 1901.07241, arXiv.org.
    • Handle: RePEc:arx:papers:1901.07241
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    References listed on IDEAS

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    1. Paltalidis, Nikos & Gounopoulos, Dimitrios & Kizys, Renatas & Koutelidakis, Yiannis, 2015. "Transmission channels of systemic risk and contagion in the European financial network," Journal of Banking & Finance, Elsevier, vol. 61(S1), pages 36-52.
    2. Eugenio Cerutti & Stijn Claessens & Patrick McGuire, 2012. "Systemic Risks in Global Banking: What Available Data Can Tell Us and What More Data Are Needed?," NBER Chapters, in: Risk Topography: Systemic Risk and Macro Modeling, pages 235-260, National Bureau of Economic Research, Inc.
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    4. Ahnert, Toni & Georg, Co-Pierre, 2018. "Information contagion and systemic risk," Journal of Financial Stability, Elsevier, vol. 35(C), pages 159-171.
    5. Robert Engle & Eric Jondeau & Michael Rockinger, 2015. "Systemic Risk in Europe," Review of Finance, European Finance Association, vol. 19(1), pages 145-190.
    6. Inci, A. Can & Li, H.C. & McCarthy, Joseph, 2011. "Financial contagion: A local correlation analysis," Research in International Business and Finance, Elsevier, vol. 25(1), pages 11-25, January.
    7. David, T. & van Kempen, Thomas & Huang, Huaxiong & Wilson, Phillip, 2011. "The geometry and dynamics of binary trees," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 81(7), pages 1464-1481.
    8. Alexakis, Panayotis D. & Kenourgios, Dimitris & Dimitriou, Dimitrios, 2016. "On emerging stock market contagion: The Baltic region," Research in International Business and Finance, Elsevier, vol. 36(C), pages 312-321.
    9. Eugenio Cerutti & Stijn Claessens & Patrick McGuire, 2012. "Systemic risk in global banking: what can available data tell us and what more data are needed?," BIS Working Papers 376, Bank for International Settlements.
    10. Olena Kostylenko & Helena Sofia Rodrigues & Delfim F. M. Torres, 2017. "Banking risk as an epidemiological model: an optimal control approach," Papers 1707.03500, arXiv.org.
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    Cited by:

    1. Bart Stellinga, 2021. "The Rise and Stall of EU Macro‐Prudential Policy. An Empirical Analysis of Policy Conflicts over Financial Stability, Market Integration, and National Discretion," Journal of Common Market Studies, Wiley Blackwell, vol. 59(6), pages 1438-1457, November.
    2. Paolo Bartesaghi & Michele Benzi & Gian Paolo Clemente & Rosanna Grassi & Ernesto Estrada, 2019. "Risk-dependent centrality in economic and financial networks," Papers 1907.07908, arXiv.org, revised Apr 2020.
    3. Chen, Naixi & Fan, Hong, 2023. "Credit risk contagion and optimal dual control—An SIS/R model," Mathematics and Computers in Simulation (MATCOM), Elsevier, vol. 210(C), pages 448-472.

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