This paper proposes a new methodology based on non-negative matrix factorization to detect communities and to identify Systemically Important Financial Institutions in the interbank network as well as within communities. The method is specifically designed for directed weighted networks and it...

We propose an algorithm to model contagion in the interbank market via what we term the credit quality channel. In existing models on contagion via interbank credit, external shocks to banks often spread to other banks only in case of a default. In contrast, shocks are transmitted via asset...

Multiple lending has been widely investigated from both an empirical and a theoretical perspective. Nevertheless, the implications of multiple lending for the stability of the banking system still need to be understood. By lending to a common set of borrowers, banks are interconnected and then...

We introduce a novel simulation-based network approach, which provides full-edged distributions of potential interbank losses. Based on those distributions we propose measures for (i) systemic importance of single banks, (ii) vulnerability of single banks, and (iii) vulnerability of the whole...

This paper presents a new theory that explains why it is beneficial for banks to be highly interconnected and to engage in herding behavior. It shows that these two important causes of systemic risk are interdependent and thus cannot be considered in isolation. The reason is that banks have an...

Global financial crisis has shown the importance of understanding the structure of interbank relations. In this study, we investigate the network relations based on interbank exposures in Türkiye. We estimate several network statistics and document how the network relations have changed over...

We propose a simple network–based methodology for ranking systemically important financial institutions. We view the risks of firms –including both the financial sector and the real economy– as a network with nodes representing the volatility shocks. The metric for the connections of the...

We develop a mean field model of interbanking borrowing and lending activities. Each bank borrows from or lends to other counterparties at an idiosyncratic rate, and is exposed to sudden shocks affecting the level of its monetary reserves. Using weak convergence analysis, we provide an explicit...

The repo market is a major source of short-term secured funding for financial institutions. Because lending in these markets is collateralized – often by high-quality securities – the stability of the market was, until recently, taken for granted by market participants and regulators....

We develop a dynamic model of interbank borrowing and lending activities in which banks are organized into clusters, and adjust their monetary reserve levels to meet prescribed capital requirements. Each bank has its own initial monetary reserve level and faces idiosyncratic risks characterized...