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Early-warning signals of topological collapse in interbank networks.

Squartini T, van Lelyveld I, Garlaschelli D - Sci Rep (2013)

Bottom Line: The financial crisis clearly illustrated the importance of characterizing the level of 'systemic' risk associated with an entire credit network, rather than with single institutions.These early-warning signals are undetectable if the network is reconstructed from partial bank-specific data, as routinely done.We discuss important implications for bank regulatory policies.

View Article: PubMed Central - PubMed

Affiliation: Instituut-Lorentz for Theoretical Physics, Leiden Institute of Physics, University of Leiden, Niels Bohrweg 2, 2333 CA Leiden, The Netherlands.

ABSTRACT
The financial crisis clearly illustrated the importance of characterizing the level of 'systemic' risk associated with an entire credit network, rather than with single institutions. However, the interplay between financial distress and topological changes is still poorly understood. Here we analyze the quarterly interbank exposures among Dutch banks over the period 1998-2008, ending with the crisis. After controlling for the link density, many topological properties display an abrupt change in 2008, providing a clear - but unpredictable - signature of the crisis. By contrast, if the heterogeneity of banks' connectivity is controlled for, the same properties show a gradual transition to the crisis, starting in 2005 and preceded by an even earlier period during which anomalous debt loops could have led to the underestimation of counter-party risk. These early-warning signals are undetectable if the network is reconstructed from partial bank-specific data, as routinely done. We discuss important implications for bank regulatory policies.

No MeSH data available.


Related in: MedlinePlus

Triadic z-scores for all the 44 quarters, grouped into four subperiods, under the DCM.First subperiod: t1–t10 (top-left); second subperiod: t11–t28 (top-right); third subperiod: t29–t40 (bottom-left); fourth subperiod: t41–t44 (bottom-right).
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f3: Triadic z-scores for all the 44 quarters, grouped into four subperiods, under the DCM.First subperiod: t1–t10 (top-left); second subperiod: t11–t28 (top-right); third subperiod: t29–t40 (bottom-left); fourth subperiod: t41–t44 (bottom-right).

Mentions: Exactly as for the dyads, we consider the z-scores for the abundances of each of the 13 triadic motifs (see SI for definitions). However, before considering the development of individual z-scores over time, we first identify the most significant motifs by comparing all 13 z-scores with each other in sub-periods. This results in the ‘motif profiles’2729 shown in fig. 3, where we used the DCM as the model.


Early-warning signals of topological collapse in interbank networks.

Squartini T, van Lelyveld I, Garlaschelli D - Sci Rep (2013)

Triadic z-scores for all the 44 quarters, grouped into four subperiods, under the DCM.First subperiod: t1–t10 (top-left); second subperiod: t11–t28 (top-right); third subperiod: t29–t40 (bottom-left); fourth subperiod: t41–t44 (bottom-right).
© Copyright Policy - open-access
Related In: Results  -  Collection

License
Show All Figures
getmorefigures.php?uid=PMC3842548&req=5

f3: Triadic z-scores for all the 44 quarters, grouped into four subperiods, under the DCM.First subperiod: t1–t10 (top-left); second subperiod: t11–t28 (top-right); third subperiod: t29–t40 (bottom-left); fourth subperiod: t41–t44 (bottom-right).
Mentions: Exactly as for the dyads, we consider the z-scores for the abundances of each of the 13 triadic motifs (see SI for definitions). However, before considering the development of individual z-scores over time, we first identify the most significant motifs by comparing all 13 z-scores with each other in sub-periods. This results in the ‘motif profiles’2729 shown in fig. 3, where we used the DCM as the model.

Bottom Line: The financial crisis clearly illustrated the importance of characterizing the level of 'systemic' risk associated with an entire credit network, rather than with single institutions.These early-warning signals are undetectable if the network is reconstructed from partial bank-specific data, as routinely done.We discuss important implications for bank regulatory policies.

View Article: PubMed Central - PubMed

Affiliation: Instituut-Lorentz for Theoretical Physics, Leiden Institute of Physics, University of Leiden, Niels Bohrweg 2, 2333 CA Leiden, The Netherlands.

ABSTRACT
The financial crisis clearly illustrated the importance of characterizing the level of 'systemic' risk associated with an entire credit network, rather than with single institutions. However, the interplay between financial distress and topological changes is still poorly understood. Here we analyze the quarterly interbank exposures among Dutch banks over the period 1998-2008, ending with the crisis. After controlling for the link density, many topological properties display an abrupt change in 2008, providing a clear - but unpredictable - signature of the crisis. By contrast, if the heterogeneity of banks' connectivity is controlled for, the same properties show a gradual transition to the crisis, starting in 2005 and preceded by an even earlier period during which anomalous debt loops could have led to the underestimation of counter-party risk. These early-warning signals are undetectable if the network is reconstructed from partial bank-specific data, as routinely done. We discuss important implications for bank regulatory policies.

No MeSH data available.


Related in: MedlinePlus