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DebtRank: Too Central to Fail? Financial Networks, the FED and Systemic Risk

Battiston, Stefano and Puliga, Michelangelo and Kaushik, Rahul and Tasca, Paolo and Caldarelli, Guido DebtRank: Too Central to Fail? Financial Networks, the FED and Systemic Risk. (Nature) Scientific Reports, 2 (541). pp. 1-6. ISSN 2045-2322 (2012)

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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.

Item Type: Article
Identification Number: 10.1038/srep00541
Projects: EC Grant FET Open Project ‘‘FOC’’ 255987
Uncontrolled Keywords: Applied physics; Modelling and theory; Statistical physics, thermodynamics and nonlinear dynamics; Theoretical physics
Subjects: H Social Sciences > HA Statistics
Q Science > QC Physics
Research Area: Economics and Institutional Change
Depositing User: Ms T. Iannizzi
Date Deposited: 07 Aug 2012 07:49
Last Modified: 07 Apr 2016 08:28
URI: http://eprints.imtlucca.it/id/eprint/1331

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