Network-Based Modeling and Analysis of Systemic Risk in Banking Systems

@article{Hu2012NetworkBasedMA,
  title={Network-Based Modeling and Analysis of Systemic Risk in Banking Systems},
  author={Daning Hu and J. Leon Zhao and Zhimin Hua and Michael C. S. Wong},
  journal={MIS Q.},
  year={2012},
  volume={36},
  pages={1269-1291}
}
In the wake of the 2008 financial tsunami, existing methods and tools for managing financial risk have been criticized for weaknesses in monitoring and alleviating risks at the systemic level. A 2009 article in Nature suggested new approaches to modeling economic meltdowns are needed to prevent future financial crises. However, existing studies have not focused on analysis of systemic risk at the individual bank level in a banking network, which is essential for monitoring and mitigating… 

Figures and Tables from this paper

Systemic risk management and investment analysis with financial network analytics: research opportunities and challenges
Recent economic crises like the 2008 financial tsunami has demonstrated a critical need for better understanding of the topologies and various economic, social, and technical mechanisms of the
Systemic risk in the banking system: measuring and interpreting the results
Highly concentrated banking system risks and the cumulative effect due to their accumulation act as a driver for improving the macro-prudential policy implemented by central banks. For this reason,
Modeling, analysis and mitigation of contagion in financial systems
Call for a Global Policy to Confront Risks Facing the International Banking System
While financial institutions exploit globalization in the banking system, a natural byproduct of this expansion, the increased risk, affects the internal and external environment of banks and
Monitoring Transmission of Systemic Risk from Shadow Banking to Regulated Banking
There is a need to introduce a statistical method to the toolkit of the regulators that is versatile, easy-to-use and can handle complex cause-effect phenomena that are not directly observable or
Systemic Risk in China’s Interbank Lending Market
We estimate an interbank lending distribution matrix, and then assume that the bankruptcy of a bank triggers a series of losses and other bank bankruptcies to establish an interbank bankruptcy chain
Clearing Payments in Financial Networks with Credit Default Swaps [Extended Abstract]
TLDR
It is proved that in financial networks with CDSs, a clearing payment vector may not even exist, which implies that the value of a contract may not be well-defined.
MACHINE LEARNING METHODS FOR SYSTEMIC RISK ANALYSIS IN FINANCIAL SECTORS
TLDR
This paper surveys existing researches and methodologies on assessment and measurement of financial systemic risk combined with machine learning technologies, including big data analysis, network analysis and sentiment analysis, etc.
Monitoring transmission of systemic risk: Application of PLS-SEM in financial stress testing
Regulators need a method that is versatile, easy to use and can handle complex path models with latent (not directly observable) variables. In a first application of partial least squares structural
Monitoring Transmission of Systemic Risk: Application of Partial Least Squares Structural Equation Modeling in Financial Stress Testing
TLDR
The finding that microlevel linkages have a greater impact on the contagion of systemic risk highlights the type of significant insight that can be generated through PLS-SEM.
...
...

References

SHOWING 1-10 OF 52 REFERENCES
Risk Assessment for Banking Systems
TLDR
It is found that correlation in banks' asset portfolios dominates contagion as the main source of systemic risk and the “value at risk” for a lender of last resort is surprisingly small.
Interbank Lending and Systemic Risk
Systemic risk refers to the propagation of a bank's economic distress to other economic agents linked to that bank through financial transactions. Banking authorities often prevent systemic risk
Interbank Lending and Systemic Risk: An Empirical Analysis for Switzerland
Systemic risk in banking has gained renewed prominence in the literature in recent years. To date, empirical studies aimed at assessing the quantitative importance of systemic risk have analyzed the
Interbank Exposures: An Empirical Examination of Systemic Risk in the Belgian Banking System
TLDR
This work investigates the evolution of contagion risk for the Belgian banking system over the period 1993-2002 using detailed information on aggregate interbank exposures of individual banks and on large bilateral inter bank exposures to find that a change from a complete structure towards a multiple money centre structure as well as a more concentrated banking market have decreased the risk and impact of contagions.
Systemic risk and the financial crisis: a primer
How did problems in a relatively small portion of the home mortgage market trigger the most severe financial crisis in the United States since the Great Depression? Several developments played a
Systemic risk in the netting system
Interbank Exposures: An Empirical Examination of Contagion Risk in the Belgian Banking System
Robust (cross-border) interbank markets are important for the well functioning of modern financial systems. Yet, a network of interbank exposures may lead to domino effects following the event of an
Financial Interlinkages in the United Kingdom's Interbank Market and the Risk of Contagion
A well functioning interbank market is essential for efficient financial intermediation. But interbank exposures imply the possibility of direct contagion: the insolvency of a single institution may
Estimating Bilateral Exposures in the German Interbank Market: Is There a Danger of Contagion?
TLDR
It is found that the financial safety net considerably reduces – but does not eliminate – the danger of contagion, and the failure of a single bank could lead to the breakdown of up to 15 % of the banking system in terms of assets.
What Is Systemic Risk, and Do Bank Regulators Retard or Contribute to It?
One of the most feared events in banking is the cry of systemic risk. It matches the fear of a cry of fire in a crowded theater or other gatherings. But unlike "fire," the term "systemic risk" is
...
...