Financial markets are exposed to systemic risk (SR), the risk that a major fraction of the system ceases to function  and collapses. Since recently it is possible to quantify SR in terms of underlying financial networks where nodes represent financial institutions, and links capture the size and maturity of assets (loans), liabilities, and other obligations  such as derivatives. We show that it is possible to quantify the share of SR that individual liabilities in a financial network contribute to the overall SR. We use empirical data of nation-wide interbank liabilities to show that a few liabilities carry the major fraction of the overall SR . We propose a tax on individual transactions that is proportional to their  contribution to overall SR. If a transaction does not increase SR it is tax free . With an agent based model (CRISIS macro-financial model) we demonstrate that the proposed  Systemic Risk Tax  (SRT) leads to a URLanized re-structuring of financial networks that are practically free of SR. ABM predictions agree remarkably well with the empirical data and can be used to understand the relation of credit risk and SR.
Financial markets are exposed to systemic risk (SR), the risk that a major fraction of the system ceases to function , and collapses. It has recently become possible to quantify SR in terms of underlying financial networks where nodes represent financial institutions, and links capture the size and maturity of assets (loans), liabilities, and other obligations , such as derivatives. We demonstrate that it is possible to quantify the share of SR that individual liabilities within a financial network contribute to the overall SR. We use empirical data of nationwide interbank liabilities to show that the marginal contribution to overall SR of liabilities for a given size varies by a factor of a thousand . We propose a tax on individual transactions that is proportional to their marginal contribution to overall SR. If a transaction does not increase SR it is tax-free . With an agent-based model (CRISIS macro-financial model) we demonstrate that the proposed " Systemic Risk Tax " (SRT) leads to a URLanised restructuring of financial networks that are practically free of SR. The SRT can be seen as an insurance for the public against costs arising from cascading failure. ABM predictions are shown to be in remarkable agreement with the empirical data and can be used to understand the relation of credit risk and SR.
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,
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Since recently it is
It has recently become
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,
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show
demonstrate
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in
within
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nation-wide
nationwide
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a few liabilities carry the major fraction of the overall SR
the marginal contribution to overall SR of liabilities for a given size varies by a factor of a thousand
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marginal
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tax free
tax-free
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agent based
agent-based
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"
A
"
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URLanized re-structuring
URLanised restructuring
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ABM predictions agree remarkably well
The SRT can be seen as an insurance for the public against costs arising from cascading failure. ABM predictions are shown to be in remarkable agreement