Below are a few recent papers that I have come across. Please let me know if you have one to add.
Inter-Sector Relations in the Portuguese Economy: an Application of Contingent Claim Analysis by Nuno Silva (Bank of Portugal Financial Stability report) builds a network of bilateral relations between sectors of the Portuguese economy and simulates a sudden loss on non-financial corporations equity and an increase in credit impairment. These results highlight the importance of the banking system in the economy. Any shock in the financial sector has more impact on the overall system than a shock in other sectors. The model is based on the Gray, Merton and Bodie (2007) model where the economy is represented as a set of balance sheets interrelated by equity and implicit guarantees on debt payments. The approach has been used by Castren and Kavonius (2009) for euro area sectors as well.
Interbank tiering and money center banks by Ben Craig and Goetz von Peter (BIS working paper) provides evidence that interbank markets are tiered rather than flat. Most banks do not lend to each other directly but through money center banks acting as intermediaries. They use Bundesbank data on bilateral interbank exposures among 1800 banks.
Analyzing Systemic Risk with Financial Networks: An Application During a Financial Crash by Burak Saltoglu and Taylan Eren Yenilmez analyze the network properties of the Turkish overnight money market during the financial crisis and propose a centrality measure to monitor and identify systemically important institutions in the financial system.
Completeness, interconnectedness and distribution of interbank exposures – a parameterized analysis of the stability of financial networks by Angelika Sachs (Bundesbank Working paper) finds that financial stability depends not only on the completeness and interconnectedness of the network but also on the distribution of interbank exposures within the system. More concentrated networks are less stable. A network with asset concentration among core banks is less stable than a random graph with banks of homogeneous size. The results come from simulations on domino effects on random structures within realistic aggregate balance sheet structures.
National Security and Global Financial Governance by Annelies Z. Kamra discusses how network analysis of the financial system can be used to analyze and improve national security. These strategies can include checks to stop cascades and regulations to break up actors with high measures of centrality.
The Transaction Network in Japan’s Interbank Money Markets by Kei Imakubo and Yutaka Soejima look at the structural changes in the Japanese money markets. They find that that interbank payment flows in Japan have changed from a star-shaped network with money brokers mediating at the hub to a decentralized network with numerous other channels. Another paper by the same authors, The Microstructure of Japan’s Interbank Money Market: Simulating Contagion of Intraday Flow of Funds Using BOJ-NET Payment Data analyzes and runs simulations on the payment network to understand the intraday flow of funds within Japan’s interbank money market, especially recycling of the “receipt-driven payments”.
I hope to post another update in a few months.
Financial Networks Research Database
We have a new year again and its a good time to collect research done last year on financial networks. As last year was quite busy, the collection of papers that I had found or that had been sent to me was getting somewhat long and cumbersome to maintain.
As a consequence I decided to put the data in a database and add a form for anyone to add their research to it. I will continue to check the entries and maintain the quality of the list. Other new features include a free text search on the articles and ability and sort entries by year, title and first author. See all 22 articles added last year.