Simulating financial contagion dynamics in random interbank networks

John Leventides (), Kalliopi Loukaki () and Vassilios Papavassiliou
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John Leventides: Department of Economics, University of Athens, Greece
Kalliopi Loukaki: Department of Economics, University of Athens, Greece

Working Paper series from Rimini Centre for Economic Analysis

Abstract: The purpose of this study is to assess the resilience of financial systems to exogenous shocks using techniques drawn from the theory of complex networks. We investigate by means of Monte Carlo simulations the fragility of several network topologies using a simple default model of contagion applied on interbank networks of varying sizes. We trigger a series of banking crises by exogenously failing each bank in the system and observe the propagation mechanisms that take effect within the system under different scenarios. Finally, we add to the existing literature by analyzing the interplay of several crucial drivers of interbank contagion, such as network topology, leverage, interconnectedness, heterogeneity and homogeneity across bank sizes and interbank exposures.

Keywords: Interbank contagion; random networks; financial stability; interconnectedness; systemic risk (search for similar items in EconPapers)
Date: 2018-09
New Economics Papers: this item is included in nep-ban and nep-cmp
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http://rcea.org/RePEc/pdf/wp18-34.pdf

Related works:
Journal Article: Simulating financial contagion dynamics in random interbank networks (2019)
Working Paper: Simulating financial contagion dynamics in random interbank networks (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:18-34

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