Financial Contagion in Interbank Networks: The Case of Erdős–Rényi Network Model

K. Loukaki, P. Boufounou and J. Leventides ()
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K. Loukaki: National and Kapodistrian University of Athens
P. Boufounou: National and Kapodistrian University of Athens
J. Leventides: National and Kapodistrian University of Athens

A chapter in Nonlinear Analysis, Differential Equations, and Applications, 2021, pp 277-317 from Springer

Abstract: Abstract In this study, we extend the model developed in Leventides et al. (J Econ Behav Organ 158:500–525, 2019) to include a wide variety of network topologies and provide a better understanding of the relation between network structure, banks’ characteristics and interbank contagion. While the focus of this paper is on the various factors that affect interbank contagion such as bank capital ratios, leverage, interconnectedness and homogeneity across banks’ sizes, the model lacks flexibility as far as the variability of the networks links is concerned. In order to circumvent this problem, we introduce the Erdős–Rényi probabilistic network model in our study to provide a wider vicinity of scenarios concerning the network structure of the interbank system and study how homogeneity within the interbank network affects the propagation of financial distress from one institution to the other parts of the system through bilateral exposures.

Keywords: Interbank contagion; Network theory; Interconnectedness; Default; Complexity; Erdős–Rényi model; Sustainable development (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:spr:spochp:978-3-030-72563-1_13

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DOI: 10.1007/978-3-030-72563-1_13

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