Credit Risk in Interbank Networks |
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Authors: | Vanessa Hoffmann De Quadros Juan Carlos González-Avella José Roberto Iglesias |
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Institution: | 1. Instituto de Física, Universidade Federal do Rio Grande do Sul, Porto Alegre, RS, Brazilvhquadros@gmail.com;3. Instituto de Física, Universidade Federal do Rio Grande do Sul, Porto Alegre, RS, Brazil;4. Programa de Mestrado em Economia, Universidade do Vale do Rio dos Sinos, S?o Leopoldo, RS, Brazil |
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Abstract: | ABSTRACTOne of the most striking characteristics of modern financial systems is their complex interdependence, comprising a network of bilateral exposures in the interbank market, in which institutions with surplus liquidity can lend to those with a liquidity shortage. Empirical studies reveal that some interbank networks have features of scale-free networks. We explore the characteristics of financial contagion in networks whose distribution of links approaches a power law, using a model that defines banks’ balance sheets from information on network connectivity. By varying the parameters for the creation of the network, several interbank networks are built, in which the concentration of debt and credit comes from the distribution of links. The results suggest that networks that are more connected and have a high concentration of credit are more resilient to contagion than other types of networks analyzed. |
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Keywords: | complex networks contagion financial crashes interbank exposure power laws systemic risk |
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