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Interconnected Networks pp 195–229Cite as

The Financial System as a Nexus of Interconnected Networks

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Part of the book series: Understanding Complex Systems ((UCS))

Abstract

In this Chapter, we describe the phenomenology of multilevel financial networks. Network analysis represents a useful tool for the analysis of financial systems, allowing, in particular, for a better understanding of the mechanics of systemic distress. However, the level of complexity reached by the financial system, coupled with the linkages arising to and from other economic sectors, calls for a more integrated approach that takes into account a whole series of networks. In this Chapter, we therefore describe the financial systems as a nexus of interconnected networks. By reviewing selected theoretical and empirical works and describing two methodological extensions for DebtRank, we show different arguments in favor of the adoption of a broader view of the network approach to finance.

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Notes

  1. 1.

    Janet L. Yellen, Interconnectedness and Systemic Risk: Lessons from the Financial Crisis and Policy Implications. Speech at the American Economic Association/American Finance Association Joint Luncheon, San Diego, California, January 4, 2013. URL: http://www.federalreserve.gov/newsevents/speech/yellen20130104a.htm

  2. 2.

    European Systemic Risk Board, Hearing before the Committee on Economic and Monetary Affairs of the European Parliament, Introductory statement by Mario Draghi, Chair of the ESRB, Brussels, 18 February 2013. Available at https://www.esrb.europa.eu/news/pr/2013/html/is130218.en.html.

  3. 3.

    Euro area accounts: SDW reports, available from the ECB Statistical Data Warehouse at http://sdw.ecb.europa.eu/servlet/desis?node=1000002778

  4. 4.

    Data are maintained by e-MID S.p.A, Società Interbancaria per l’Automazione, Milan, Italy (e-MID).

  5. 5.

    Further technical details on the motivations behind this dynamics, including a formal derivation, can be found in Ref. [10].

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Authors and Affiliations

  1. Department of Banking and Finance, University of Zürich, Zürich, Switzerland

    Stefano Battiston & Marco D’Errico

  2. IMT Alti Studi Lucca, Lucca, Italy

    Guido Caldarelli

  3. ISC-CNR, Rome, Italy

    Guido Caldarelli

  4. LIMS, London, UK

    Guido Caldarelli

Authors
  1. Stefano Battiston
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  2. Guido Caldarelli
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  3. Marco D’Errico
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Corresponding author

Correspondence to Stefano Battiston .

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Editors and Affiliations

  1. Systems Design, ETH Zürich, Zürich, Switzerland

    Antonios Garas

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Battiston, S., Caldarelli, G., D’Errico, M. (2016). The Financial System as a Nexus of Interconnected Networks. In: Garas, A. (eds) Interconnected Networks. Understanding Complex Systems. Springer, Cham. https://doi.org/10.1007/978-3-319-23947-7_12

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