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Contagious Defaults in Interbank Networks

Author

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  • Ali Elminejad

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)

Abstract

This paper investigates systemic risk and contagion processes in an interbank network using network science methods. The interbank network is studied to understand the contagion process within a network considering differences in the network structure and the characteristics of components. Simulations support the claim that heterogeneous networks are more resilient to contagious shocks, while these shocks are more problematic in homogeneous networks. This paper also shows that more interconnections among banks could accelerate or block the contagion process, depending on the structure of the network and the seniority of debts in the interbank network.

Suggested Citation

  • Ali Elminejad, 2022. "Contagious Defaults in Interbank Networks," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 72(2), pages 104-123, June.
    • Handle: RePEc:fau:fauart:v:72:y:2022:i:1:p:104-123
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    File URL: https://journal.fsv.cuni.cz/mag/article/show/id/1498
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    Keywords

    complex networks; interbank network; systemic risk; default risk; epidemic modeling;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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