Systemic risk on different interbank network topologies

Simone Lenzu and Gabriele Tedeschi

No 375, Working Papers from Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali

Abstract: In this paper we develop an interbank market with heterogeneous financial institutions that enter into lending agreements on different network structures. Credit relationships (links) evolves endogenously via a fitness mechanism based on agents performance. By changing the agent's trust on its neighbor's performance, interbank linkages self-organize themselves into very different network architectures, ranging from random to scale-free topologies. We study which network architecture can make the financial system more resilient to random attacks and how systemic risk spreads over the network. To perturb the system, we generate a random attack via a liquidity shock. The hit bank is not automatically eliminated, but its failure is endogenously driven by its incapacity to raise liquidity in the interbank network. Our analysis shows that a random financial network can be more resilient than a scale free one in case of agents' heterogeneity.

Keywords: Interbank market; dynamic network; heterogeneity.; network resilience (search for similar items in EconPapers)
Pages: 23
Date: 2012-04
New Economics Papers: this item is included in nep-ban and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (93)

Downloads: (external link)
http://docs.dises.univpm.it/web/quaderni/pdf/375.pdf First version, 2012 (application/pdf)

Related works:
Journal Article: Systemic risk on different interbank network topologies (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:anc:wpaper:375

Access Statistics for this paper

More papers in Working Papers from Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali Contact information at EDIRC.
Bibliographic data for series maintained by Maurizio Mariotti ().