Financial Network and Systemic Risk—A Dynamic Model

Hong Chen, Tan Wang and David D. Yao

Production and Operations Management, 2021, vol. 30, issue 8, 2441-2466

Abstract: We develop a dynamic model to study the systemic risk of the banking network, so as to study the dynamics of bank defaults. In contrast to the existing literature, we show that while the possibility of contagion is determined by interconnectedness of the financial network, whether a financial crisis can occur depends on the profile of the liquid assets of the banks in the system. Based on the dynamic model, we introduce a time to crisis index that allows us to predict the occurrence of a financial crisis. We then provide an intuitive measure of systemic risk. To illustrate the potential usefulness of our model, we provide an analysis of the system of twenty‐two German banks. We show how many of the banks are fundamentally weak, where the contagion effect may arise from, how strong the contagion effect is, and how significant the systemic risk is.

Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://doi.org/10.1111/poms.13384

Related works:
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:bla:popmgt:v:30:y:2021:i:8:p:2441-2466

Ordering information: This journal article can be ordered from
http://onlinelibrary ... 1111/(ISSN)1937-5956

Access Statistics for this article

Production and Operations Management is currently edited by Kalyan Singhal

More articles in Production and Operations Management from Production and Operations Management Society
Bibliographic data for series maintained by Wiley Content Delivery ().