Systemic Risks and Resilience of Global Financial Networks

Abstract

The current financial crisis has triggered researchinterests on financial networks, since the linkages created byliabilities among banks and other financial institutions play acrucial role, but they are poorly understood. Understanding thestructures of financial networks holds the key to understandingits function and the investigations of their network propertiesgain more attention. One remarkable finding is that financialnetworks in many countries share some apparently universalfeatures. A prominent example is a highly skewed degreedistribution with core-periphery structures. In this paper, we tryto identify key network properties that influence our two variantsof contagious default. We formulate the global financial networksas modular networks and study the resilience of global financialnetworks from the perspective of systemic risk. We highlight thatsystemic risks of the global financial networks is mainlydetermined by the property of the sub-module network whichforms the basic unit of the global modular networks.