Systemic Risk and Stability in Financial Networks

  title={Systemic Risk and Stability in Financial Networks},
  author={Daron Acemoglu and Asuman E. Ozdaglar and Alireza Tahbaz-Salehi},
We provide a framework for studying the relationship between the financial network architecture and the likelihood of systemic failures due to contagion of counterparty risk. We show that financial contagion exhibits a form of phase transition as the extent of interbank interconnectivity increases: as long as the magnitude and the number of negative shocks affecting financial institutions are sufficiently small, a more equal distribution of interbank obligations enhances the stability of the… CONTINUE READING
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