DebtRank: Too Central to Fail?
- Journal Article
Rights / licenseCreative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported
Systemic risk, here meant as the risk of default of a large portion of the financial system, depends on the network of financial exposures among institutions. However, there is no widely accepted methodology to determine the systemically important nodes in a network. To fill this gap, we introduce, DebtRank, a novel measure of systemic impact inspired by feedback-centrality. As an application, we analyse a new and unique dataset on the USD 1.2 trillion FED emergency loans program to global financial institutions during 2008–2010. We find that a group of 22 institutions, which received most of the funds, form a strongly connected graph where each of the nodes becomes systemically important at the peak of the crisis. Moreover, a systemic default could have been triggered even by small dispersed shocks. The results suggest that the debate on too-big-to-fail institutions should include the even more serious issue of too-central-to-fail. Show more
Journal / seriesScientific Reports
Pages / Article No.
PublisherNature Publishing Group
SubjectTheoretical physics; Statistical physics, thermodynamics and nonlinear dynamics; Applied physics
Organisational unit03682 - Schweitzer, Frank / Schweitzer, Frank
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