Systemic risk shifting in financial networks

Systemic risk: a network approach

“…Future financial regulation should also be oriented toward a multidimensional analysis of financial institutions' risks, and the network approach should be used to better capture the multivariate nature of systemic risk. Indeed, the relevance of capital surcharges for G-SIBs (Poledna, Bochmann and Thurner, 2017) or firebreaks (Elliott, Georg and Hazell, 2018) depends on the topology of the financial network (Acemoglu, Ozdaglar and Tahbaz-Salehi, 2015). The banking and insurance sectors have been regulated to reach lower systemic risk.…”

S-shaped transition trajectory and dynamic development frontier of the financial systemic risk research: a multiple networks analysis

“…Considering the severe consequences resulted by financial systemic risk (Patro et al, 2013), some scholars began to study the driving forces of the financial systemic risk at the micro-level and macro-level. At the micro-level, financial systemic risk is generated from various aspects, such as the credit of the financing plat-form (He & Chen, 2016), the risk exposure of participant (Halili et al, 2021) and bank risk shifting (Elliott et al, 2021); At the macro-level, financial systemic risk is affected by many factors, such as macroprudential policy (Zhang et al, 2020a), macroeconomic activity (Kapinos et al, 2020) and a series of main systemic events (Morelli & Vioto, 2020).…”

Systemic Risk in Financial Networks: A Survey

“…They then study how the risk of contagion depends on the network structure of interbank obligations, and in particular its density. 11 This is not just a theoretical concern, as there is evidence that two banks are much more likely to be counterparties if their portfolios are more correlated (Elliott et al (2018)), suggesting that banks that are connected via financial obligations also tend to be more connected via commonalities in exposures.…”

“…Similarly, an analysis in Jackson & Pernoud (2019) shows that banks tend to choose too few counterparties on which to hold claims, because they overlook contagion costs others incur when they go bankrupt. 28 Furthermore, the equilibrium network exhibits 'homophily' in portfolios of outside assets (Elliott, Georg & Hazell (2018)). Banks prefer to be counterparties of other banks that have similar portfolios.…”

“…Since then, several studies have examined this sort of correlation explicitly, and it continues. 50 For instance, Elliott, Georg & Hazell (2018) find that German banks are more likely to lend to banks with portfolios similar to their own: going from the 25th to 75th percentile of similarity in portfolios between two banks increases their lending to each other by 31 percent. They also find an effect on the extensive margin in terms of the probability that they lend to each other at all.…”