On the influence of network structure on the resilience and losses of financial systems

Lorenzo Zino (), Giulia Fracastoro (), Anton V. Proskurnikov () and Giuseppe Carlo Calafiore ()
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Lorenzo Zino: Politecnico di Torino, Italy
Giulia Fracastoro: Politecnico di Torino, Italy
Anton V. Proskurnikov: Politecnico di Torino, Italy
Giuseppe Carlo Calafiore: Politecnico di Torino, Italy

The Journal of Mechanism and Institution Design, 2025, vol. 10, issue 1, 97-122

Abstract: We investigate resilience to defaults in financial networks, where nodes hold shares in a common set of external assets. Price fluctuations in these assets can trigger shareholder defaults, propagating through the network and causing default cascades. In particular, we conduct a series of numerical experiments to elucidate the influence of the network structure on the financial system. Our investigation explores the effects of sparsity versus connectivity, clustering, and liability heterogeneity among financial institutions. We also examine the impact of diversification and asset investment heterogeneity.

Keywords: Default cascades; financial networks; resilience. (search for similar items in EconPapers)
JEL-codes: C02 C61 G01 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:jmi:articl:jmi-v10i1a4

DOI: 10.22574/jmid.2025.12.004

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