Bilateral Netting and Contagion Dynamics in Financial Networks

Interbank money market concerns and actors’ strategies—A systematic review of 21st century literature

“…Besides, the results of exploring the characteristics of contagion in networks with power-law distribution by De Quadros et al (2015) revealed that more connected networks are more resistant to contagion than others. Moreover, Gaffeo and Gobbi (2015) discovered that stability was increased by interconnectedness considerably when the shocks affected the assets (in borrower side) and conditionally (i.e., dependent on the topological characteristics of the interbank network) when shocks hit the liabilities (in lender side). Furthermore, network simulations by Gonzalez-Avella et al (2016) suggested that more connected networks with a high concentration of credit are more resilient to contagion than other networks.…”

“…• Stability-One of the main concerns we identified for the interbank market in this study is stability. Despite the large number of documents produced in this field, scholars still believe that (Acemoglu et al, 2015;Battiston et al, 2012;Chakraborty et al, 2017;Gaffeo & Molinari, 2016;Gao & Fan, 2020;Ladley, 2013;Li & He, 2011;Nier et al, 2007;Smaga et al, 2018;Steinbacher et al, 2016) Positive BB and LB: Diversify exposure across different systemic events LB: Lend multiple small banks; increase lending to banks of any size, if large themselves (Acemoglu et al, 2015;Chakraborty et al, 2017;De Quadros et al, 2015;Gaffeo & Gobbi, 2015;Gaffeo & Molinari, 2016;Georg, 2013;Gonzalez-Avella et al, 2016;Iori et al, 2006;Ladley, 2013;Li, 2011;Li & He, 2011;Nier et al, 2007;…”