The topology of interbank payment flows

Soramäki, Kimmo; Bech, Morten L.; Arnold, Jeffrey; Glass, Robert J.; Beyeler, Walter E.

doi:10.1016/j.physa.2006.11.093

Cited by 541 publications

(381 citation statements)

References 28 publications

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“…S3 and S4). Disassortativity is common in biological, technological and financial networks (8,29,33,34), which suggests that asymmetric links may play an important role in network robustness.…”

Section: Empirical Results and Discussionmentioning

confidence: 99%

“…Our data include virtually all 10,000 plus firms and their Ͼ700,000 bilateral exchanges, circa [1985][1986][1987][1988][1989][1990][1991][1992][1993][1994][1995][1996][1997][1998][1999][2000][2001][2002][2003], as recorded by the Union of Needle Trades and Industrial and Textile Employees (UNITE) (see Methods). Although these data resemble nation-to-nation commodity flow or interbank payment data (28)(29)(30)(31), there are important differences. The links are not directional as in commodity chains, which are typified by flows from raw to finished goods along distinct stages of production.…”

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confidence: 99%

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Asymmetric disassembly and robustness in declining networks

Saavedra

Reed‐Tsochas²,

Uzzi

2008

Proc. Natl. Acad. Sci. U.S.A.

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Mechanisms that enable declining networks to avert structural collapse and performance degradation are not well understood. This knowledge gap reflects a shortage of data on declining networks and an emphasis on models of network growth. Analyzing >700,000 transactions between firms in the New York garment industry over 19 years, we tracked this network's decline and measured how its topology and global performance evolved. We find that favoring asymmetric (disassortative) links is key to preserving the topology and functionality of the declining network. Based on our findings, we tested a model of network decline that combines an asymmetric disassembly process for contraction with a preferential attachment process for regrowth. Our simulation results indicate that the model can explain robustness under decline even if the total population of nodes contracts by more than an order of magnitude, in line with our observations for the empirical network. These findings suggest that disassembly mechanisms are not simply assembly mechanisms in reverse and that our model is relevant to understanding the process of decline and collapse in a broad range of biological, technological, and financial networks.complex networks ͉ contraction ͉ socioeconomic systems R esearch on the dynamics and robustness of complex networks (1-3) has emphasized the study of global network growth, identifying assembly mechanisms such as preferential attachment (4, 5), vertex fitness (6), vertex duplication (7), and fractal network growth (8), which, at the macroscopic level, generate stable topological characteristics despite large fluctuations in the microscopic network parameters. In addition, mechanisms have been proposed that can produce stable topological metrics in networks of constant size (9-12). Notably, methods based on percolation theory have significantly contributed to our understanding of how robust the static network structures generated by these assembly mechanisms are to fragmentation under random and targeted attack (8,(13)(14)(15).Less is known about the dynamics and robustness of networks under sustained decline. In declining networks, new nodes and links may be added over time but the net process is a progressive loss of nodes and links. Hence, although assembly mechanisms may come into play, the emphasis must be on which disassembly mechanisms help preserve the topological characteristics and performance of the network. For example, Alzheimer's research examines how degradation in mental performance can be related to the progressive loss and disconnection of neurons with age (16). In an ecological context, analogous questions arise regarding the vulnerability of food webs to habitat loss and fragmentation (17, 18). In social and economic systems, network decline has raised questions about the preservation of social capital (19), resource allocation in developing economies (20), the prevention of financial collapse (21), effective coordination among suppliers (22), the restructuring of political systems (23), and lock-in in...

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Section: Empirical Results and Discussionmentioning

confidence: 99%

mentioning

confidence: 99%

Asymmetric disassembly and robustness in declining networks

Saavedra

Reed‐Tsochas²,

Uzzi

2008

Proc. Natl. Acad. Sci. U.S.A.

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“…Traditional simulation approaches mainly use historical data [4] to analyse the interbank payment interactions. For example, Bedford, Millard, and Yang apply some stochasticity to test different bank behaviours under different hypotheses on the operational rules [5].…”

Section: Related Workmentioning

confidence: 99%

Simulating the Fractional Reserve Banking using Agent-based Modelling with NetLogo

Monett

Navarro-Barrientos

2016

Annals of Computer Science and Information Systems

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Abstract-This work presents a multi-agent-based computational model of an artificial fractional reserve banking system. The model is implemented in NetLogo. The computational experiments and simulations we performed to analyse the proposed model show that different scenarios can lead to bank insolvency. We show that both the minimum reserve rate and the loss of confidence have large contributions to the insolvency of a bank, suggesting them as likely destabilizing economic forces driving the dynamics of the model.Index Terms-agent-based model, agent-based simulation, BDI agents, fractional reserve banking, NetLogo.

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“…The second stage is symbolized by a conference entitled "New Directions for Understanding Systemic Risk", which brought together experts from various disciplines to explore parallels between systemic risk in finance and systemic risk in engineering, ecology, and other fields of sciences [8]. After that a series of interdisciplinary researches using various modeling and theory have emerged [9]. The 2007 US financial crisis becomes another driving force of this line of the research.…”

Section: Literature Review On Complex Network Methodologymentioning

confidence: 99%

International transmission of shocks and fragility of a bank network

Feng

Kim

2014

Physica A: Statistical Mechanics and its Applications

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The weighted and directed network of countries based on the number of overseas banks is analyzed in terms of its fragility to the banking crisis of one country. We use two different models to describe transmission of shocks, one local and the other global. Depending on the original source of the crisis, the overall size of crisis impacts is found to differ country by country. For the two-step local spreading model, it is revealed that the scale of the first impact is determined by the out-strength, the total number of overseas branches of the country at the origin of the crisis, while the second impact becomes more serious if the in-strength at the origin is increased. For the global spreading model, some countries named "triggers" are found to play important roles in shock transmission, and the importance of the feed-forward-loop mechanism is pointed out. We also discuss practical policy implications of the present work. I. BACKGROUNDThe increasing globalization provides important advantages in terms of risk sharing and risk diversification in banking and financial markets, but it also facilitates the risk spreading among different nations [1]. The recent financial crisis or shock, originated from United States (US) and spread to other countries, has witnessed that many overseas banks cut back their loans to the local markets and withdrew their representations. The withdrawals cause the liquidity shortage of the host countries which then lead to subsequent withdrawals of the host countries' overseas branches in the crisis attacked countries. This process can continue and the shocks in this situation are hence defined as sequential shocks in this study.There are abundant literature on transmission mechanism of shocks in global banking: [2] examines how Japanese asset bubbles have been transmitted to US via lending responses of Japanese overseas banks in US in the 80's; [3] explores the mechanism of 1998 Russian debt default as a negative liquidity shock to international banking and its impacts on the banking of Peru; [4] studies the effect of financial distress in foreign parent banks on the local SME (small and medium enterprises) financing in 14 central and eastern European countries during the early stage of the 2007 financial crisis.Within the framework of complex network theory, this paper introduces models for shock transmission and examines the different impacts of the sequential shocks on the global banking network. We find that the damage of the shocks is closely related to the directionality of the edges and the network topology plays an important role. * Corresponding author: beomjun@skku.edu II. LITERATURE REVIEW ON COMPLEX NETWORK METHODOLOGYThe research using complex system approach in banking has also experienced three stages of the development. In the earlier stage, [6] claims that the possibility of contagion effect depends on the structure of interbank linkages. They believe that a "complete structure of linkages" will share the risk more easily than "an incomplete structure", hence the risk sh...

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The topology of interbank payment flows

Cited by 541 publications

References 28 publications

Asymmetric disassembly and robustness in declining networks

Asymmetric disassembly and robustness in declining networks

Simulating the Fractional Reserve Banking using Agent-based Modelling with NetLogo

International transmission of shocks and fragility of a bank network

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