Abstract
We propose a dynamic model for systemic risk using a bipartite network of banks and assets in which the weight of links and node attributes vary over time. Using market data and bank asset holdings, we are able to estimate a single parameter as an indicator of the stability of the financial system. We apply the model to the European sovereign debt crisis and observe that the results closely match real-world events (e.g., the high risk of Greek sovereign bonds and the distress of Greek banks). Our model could become complementary to existing stress tests, incorporating the contribution of interconnectivity of the banks to systemic risk in time-dependent networks. Additionally, we propose an institutional systemic importance ranking, BankRank, for the financial institutions analyzed in this study to assess the contribution of individual banks to the overall systemic risk.
| Original language | English |
|---|---|
| Article number | 3358 |
| Journal | Scientific Reports |
| Volume | 11 |
| Issue number | 1 |
| DOIs | |
| State | Published - 8 Feb 2021 |
Bibliographical note
Publisher Copyright:© 2021, The Author(s).
Funding
We thank Stefano Battiston for useful discussions and providing us with part of the data. The authors also wish to thank Matthias Randant and others for helpful comments and discussions, and especially Fotios Siokis for sharing important points about the data and the eurozone crisis. SVB thanks the Dr. Bernard W. Gamson Computational Science Center at Yeshiva College for support. This work was supported by the European Commission FET Open Project [Grant FOC 255987], [Grant FOC-INCO 297149]; the National Science Foundation [SES-1452061], [CMMI-1125290]; the Office of Naval Research [N00014-09-1-0380], [N00014-12-1-0548]; the Defense Threat Reduction Agency [HDTRA-1-10-1-0014], [HDTRA-1-09-1-0035]; the European MULTIPLEX Project; the LINC project; the Israel Science Foundation; BSF-NSF; the BIU Centre for Research in Applied Cryptography and Cyber Security. IV aknowledges financial support of the Department of Defense, Network Science Division, Army Research Office (Grant No. W911NF2010187). SVB and SH acknowledge financial support of DTRA (Grant No. HDTRA-1-19-10016).
| Funders | Funder number |
|---|---|
| BSF-NSF | |
| Network Science Division | |
| National Science Foundation | CMMI-1125290, SES-1452061 |
| U.S. Department of Defense | |
| Office of Naval Research | |
| Army Research Office | HDTRA-1-19-10016, W911NF2010187 |
| Defense Threat Reduction Agency | HDTRA-1-09-1-0035, HDTRA-1-10-1-0014 |
| Office of Naval Research Global | N00014-09-1-0380, N00014-12-1-0548 |
| European Commission | FOC 255987, FOC-INCO 297149 |
| Israel Science Foundation |