In order to design complex networks that are robust and sustainable, we must understand systemic risk. As economic systems become increasingly interconnected, for example, a shock in a single financial network can provoke  cascading failures throughout the system. The widespread effects of the current EU debt crisis and the 2008 world financial crisis occur because financial systemsare characterized by complex relations that allow a local crisis to spread dramatically. We study US commercial bank balance sheet data and design a bi-partite banking network composed of (i) banks and (ii) bank assets . We propose a cascading failure model to simulate the crisis spreading process in a bi-partite banking network. We test our model using 2007 data to analyze failed banks . We find that , within realistic parameters, our model identifies a significant portion of the actual failed banks from the FDIC failed bank database from 2008 to 2011.
As economic entities become increasingly interconnected, a shock in a financial network can provoke significant cascading failures throughout the system. To study the systemic risk of financial systems, we create a bi-partite banking network model composed of banks and bank assets and propose a cascading failure model to describe the risk propagation process during crises. We empirically test the model with 2007 US commercial banks balance sheet data and compare the model prediction of the failed banks with the real failed banks after 2007. We find that our model efficiently identifies a significant portion of the actual failed banks reported by Federal Deposit Insurance Corporation. The results suggest that this model could be useful for systemic risk stress testing for financial systems. The model also identifies that commercial rather than residential real estate assets are major culprits for the failure of over 350 US commercial banks during 2008-2011.
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In order to design complex networks that are robust and sustainable, we must understand systemic risk. As economic systems
As economic entities
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for example,
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single
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significant
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The widespread effects of the current EU debt crisis and the 2008 world financial crisis occur because financial systemsare characterized by complex relations that allow a local crisis to spread dramatically. We study US commercial bank balance sheet data and design a
To study the systemic risk of financial systems, we create a
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composed of (i) banks and (ii) bank assets . We
model composed of banks and bank assets and
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simulate the crisis spreading process in a bi-partite banking network. We test our model using
describe the risk propagation process during crises. We empirically test the model with
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data to analyze failed banks .
US commercial banks balance sheet data and compare the model prediction of the failed banks with the real failed banks after 2007.
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, within realistic parameters, our model
our model efficiently
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from the FDIC failed bank database from 2008 to 2011.
reported by Federal Deposit Insurance Corporation. The results suggest that this model could be useful for systemic risk stress testing for financial systems. The model also identifies that commercial rather than residential real estate assets are major culprits for the failure of over 350 US commercial banks during 2008-2011.