Financial stability and network complexity: A random matrix approach

Fei Li, Hao Kang and Jingfeng Xu

International Review of Economics & Finance, 2022, vol. 80, issue C, 177-185

Abstract: This paper develops a network model having random matrices to explore the effects of network complexity on financial stability. We provide the stability criterion and show that too rich a network connectivity or larger network size can cause instability. This reveals a new insight that the rapid financial growth will lose stability if network connectivity and size are not balanced. We also find that increasing competitive interactions within the network can enhance the stability, and the network size can affect such effect on stability. Our results carry potentially far-reaching implications for the implementation of regulation policy.

Keywords: Stability criterion; Random matrix; Network complexity; Co-opetition pattern (search for similar items in EconPapers)
JEL-codes: D85 E44 G21 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:80:y:2022:i:c:p:177-185

DOI: 10.1016/j.iref.2022.02.050

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