Financial Networks and Financial Stability

The European Central Bank published on 1 June a special feature entitled “Financial Networks and Financial Stability” in its Financial Stability Review.

The recent global financial crisis has illustrated the role of financial linkages as a channel for the propagation of shocks. It also brought to the fore the concept that institutions may be “too interconnected to fail”, in addition to the traditional concept of being “too big to fail”. [full article]

The article provides an overview on literature on financial network analysis and discusses what network theory can bring to the understanding of the concept of “too interconnected to fail”. The article was prepared by me and Silvia Gabrieli.