Complex financial networks and systemic risk: a review

In this paper we review recent advances in financial economics in relation to the measurement of systemic risk. We start by reviewing studies that apply traditional measures of risk to financial institutions. However, the main focus of the review is on studies that use network analysis paying special attention to those that apply complex analysis techniques. Applications of these techniques for the analysis and pricing of systemic risk has already provided significant benefits at least at the conceptual level but it also looks very promising from a practical point of view

Risk contagion in the cross-border banking network: Some new evidence

This paper applies consolidated banking statistics data from the Bank for International Settlement to simulate risk contagion in a cross-border banking system with shocks of credit and liquidity. Simulation results from balance sheet network analysis show that the banking systems of the United States and the United Kingdom are the most systemically important systems under the credit shocks in June 2008. Moreover, banking system's counter-shocks ability is directly related to its size and concentration of foreign claims. The banking systems of German and French are the most systemically important systems under liquidity shocks. Some banking systems depend heavily on German and French banking systems for financing and are vulnerable to liquidity shocks. Risk transfer has influence on risk contagion in the cross-border banking system. After the subprime crisis, cross-border risk contagion has declined because of deleveraging foreign claims. Raising the capital level of the banking system or intervention in the interbank market to enhance the liquidity of the market under pressure scenarios can reduce the contagion effect of credit or liquidity shocks