Systemic risk analysis of interbank networks with scale-free topography

SEMESHENKO VIKTORIYA; FEDERICO TESLER

San Carlos de Bariloche

Congreso; XIV Taller Regional de Física Estadística y Aplicaciones a la Materia Condensada(TREFEMAC 2016); 2016

AFA

The risk of systemic breakdown in banking systems constitutes a main concern for central banks tasked with preserving financial stability. Systemic risk emerges when there is the probability for multiple banks to fail, inflicting costs on the financial system and on the economy as a whole. The structure of a banking-network, comprising the degree to which banks are connected to each other through bilateral exposures may play an important role in its susceptibility to systemic breakdown. Empirical analysis has shown that interbank networks often exhibit a scale-free topology, i.e. they are characterized by a few money center banks with many interconnections and a large number of small banks with few connections (Blavarg and Nimander (2002), Boss et al. (2004), van Lelyveld and Liedorp (2006), Degryse and Nguyen (2007)). In this work we develop a numerical study of systemic risk in such scale-free banking-systems. Networks are generated using a modified version of the Fitness-model adapted for static networks with given expected degree sequences. We analyze how the stability of the system evolves as the structure of the network is changed by modifyingkey parameters as the maximum degree, power-law-coefficient, and banking-exposure.