The impact of network topology on banking system dynamics

Abstract

A topology of a banking network influences systemic stability under fixed banks’ and customers’ policy. Dynamical processes in a network affect topological changes at each iteration, so differences in initial topologies may result in different stability dynamics. Taking into account the influence of both nodes’ states dynamics and topology dynamics on the network fragility, the following ways of initial topology impact can be distinguished: (i) states of nodes after initialization (as a state of a node is influenced by its degree); (ii) nodes’ states dynamics; (iii) systemic risk at the fixed iteration. It seems that coevolution of network topology and states of nodes leads to the significant and unpredictable changes of initial conditions. We study the interrelations between initial and resulting system’s states for different types of initial topology. Our results confirm that the dynamics of a borrowing process is significantly influenced by topological features of the underlying interbank network.