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Analyzing Systemic Risk with Financial Networks An Application During a Financial Crash

Author

Listed:
  • Saltoglu, Burak
  • Yenilmez, Taylan

Abstract

A financial network model, where the coded identity of the counterparties of every trade is known, is applied to both stable and crisis periods in a large and liquid overnight repo market in an emerging market economy. We have analyzed the financial crisis by using various network investigation tools such as links, interconnectivity, and reciprocity. In addition, we proposed a centrality measure to monitor and detect the ‘systemically important financial institution’ in the financial system. We have shown that our measure gives strong signals much before the crisis.

Suggested Citation

  • Saltoglu, Burak & Yenilmez, Taylan, 2010. "Analyzing Systemic Risk with Financial Networks An Application During a Financial Crash," MPRA Paper 26684, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:26684
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    File URL: https://mpra.ub.uni-muenchen.de/26684/1/MPRA_paper_26684.pdf
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    References listed on IDEAS

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    2. De Bandt, Olivier & Hartmann, Philipp, 2000. "Systemic risk: A survey," Working Paper Series 35, European Central Bank.
    3. Upper, Christian & Worms, Andreas, 2004. "Estimating bilateral exposures in the German interbank market: Is there a danger of contagion?," European Economic Review, Elsevier, vol. 48(4), pages 827-849, August.
    4. Burak Saltoglu & Jon Danielsson, 2003. "Anatomy of a Market Crash: A Market Microstructure Analysis of the Turkish Overnight Liquidity Crisis," FMG Discussion Papers dp456, Financial Markets Group.
    5. Iori, Giulia & De Masi, Giulia & Precup, Ovidiu Vasile & Gabbi, Giampaolo & Caldarelli, Guido, 2008. "A network analysis of the Italian overnight money market," Journal of Economic Dynamics and Control, Elsevier, vol. 32(1), pages 259-278, January.
    6. Rochet, Jean-Charles & Tirole, Jean, 1996. "Interbank Lending and Systemic Risk," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 733-762, November.
    7. Sheri Markose & Simone Giansante & Mateusz Gatkowski & Ali Rais Shaghaghi, 2010. "Too Interconnected To Fail: Financial Contagion and Systemic Risk In Network Model of CDS and Other Credit Enhancement Obligations of US Banks," Working Papers 033, COMISEF.
    8. M. Serrano & Marián Boguñá & Alessandro Vespignani, 2007. "Patterns of dominant flows in the world trade web," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 2(2), pages 111-124, December.
    9. Michael Boss & Gerald Krenn & Valentina Metz & Claus Puhr & Stefan W. Schmitz, 2008. "Systemically Important Accounts, Network Topology and Contagion in ARTIS," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 15, pages 93-111.
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    Cited by:

    1. Kuzubaş, Tolga Umut & Ömercikoğlu, Inci & Saltoğlu, Burak, 2014. "Network centrality measures and systemic risk: An application to the Turkish financial crisis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 405(C), pages 203-215.
    2. Martinez-Jaramillo, Serafin & Alexandrova-Kabadjova, Biliana & Bravo-Benitez, Bernardo & Solórzano-Margain, Juan Pablo, 2014. "An empirical study of the Mexican banking system’s network and its implications for systemic risk," Journal of Economic Dynamics and Control, Elsevier, vol. 40(C), pages 242-265.
    3. Tolga Umut Kuzubas & Burak Saltoglu & Can Sever, 2014. "Systemic Risk and Heterogeneous Leverage in Banking Network: Implications for Banking Regulation," Working Papers 2014/01, Bogazici University, Department of Economics.

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    More about this item

    Keywords

    systemic risk; financial regulation; financial crisis; BASEL III; systemically important financial institution; Turkey; IMF;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • G01 - Financial Economics - - General - - - Financial Crises

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