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.

/pdf/debtrank-too-central-to-fail-financial-networks-the-fed-and-4v2qibr1w5.pdf

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

The structure of the control network of transnational corporations affects global market competition and financial stability. So far, only small national samples were studied and there was no appropriate methodology to assess control globally. We present the first investigation of the architecture of the international ownership network, along with the computation of the control held by each global player. We find that transnational corporations form a giant bow-tie structure and that a large portion of control flows to a small tightly-knit core of financial institutions. This core can be seen as an economic “super-entity” that raises new important issues both for researchers and policy makers.

/pdf/the-network-of-global-corporate-control-3aivpismcl.pdf

The network of global corporate control

Cours d'economie politique

We characterize the evolution over time of a network of credit relations among financial agents as a system of coupled stochastic processes. Each process describes the dynamics of individual financial robustness, while the coupling results from a network of liabilities among agents. The average level of risk diversification of the agents coincides with the density of links in the network. In addition to a process of diffusion of financial distress, we also consider a discrete process of default cascade, due to the re-evaluation of agents' assets. In this framework we investigate the probability of individual defaults as well as the probability of systemic default as a function of the network density. While it is usually thought that diversification of risk always leads to a more stable financial system, in our model a tension emerges between individual risk and systemic risk. As the number of counterparties in the credit network increases beyond a certain value, the default probability, both individual and systemic, starts to increase. This tension originates from the fact that agents are subject to a financial accelerator mechanism. In other words, individual financial fragility feeding back on itself may amplify the effect of an initial shock and lead to a full fledged systemic crisis. The results offer a simple possible explanation for the endogenous emergence of systemic risk in a credit network.

Liaisons Dangereuses: Increasing Connectivity, Risk Sharing, and Systemic Risk

https://academiccommons.columbia.edu/doi/10.7916/D8T15DJV/download

Liaisons dangereuses: Increasing connectivity, risk sharing, and systemic risk

Financial fragility and distress propagation in a network of regions

This paper analyses the impact of Sovereign Wealth Fund (SWF) equity investments on target firm operating performance. Metrics from network analysis are used to investigate whether target firms, that are better connected each other by means of the SWF investments, extract benefits from this network in terms of higher operating performance. The study dataset is made up of 507 SWF acquisition deals worldwide in the time span between 2000 and 2011. Findings indicate that more central firms in the SWF-target firm network enjoybetter operating performance. In addition, the analysis points out that operating performance is higher: (i) the larger the stake acquired, (ii) if the investment is direct and domestic, (iii) if the SWF is run by a politician. Overall, the results reveal that only when a target firm can benefit from the network of both political andcommercial connections created by SWFs, do they enjoy these benefits and gain in operating performance.

/pdf/sovereign-wealth-funds-and-target-firms-does-networking-39c31u0t1y.pdf

Sovereign Wealth Funds and Target Firms: Does 'Networking' Matter?

Exploratory analysis of safety data and their interrelationwith flight trajectories and network metrics

We investigate the community structure of the global ownership network of transnational corporations. We find a pronounced organization in communities that cannot be explained by randomness. Despite the global character of this network, communities reflect first of all the geographical location of firms, while the industrial sector plays only a marginal role. We also analyze the network in which the nodes are the communities and the links are obtained by aggregating the links among firms belonging to pairs of communities. We analyze the network centrality of the top 50 communities and we provide the first quantitative assessment of the financial sector role in connecting the global economy.

/pdf/the-community-structure-of-the-global-corporate-network-1ynt3zliex.pdf

The Community Structure of the Global Corporate Network

Consider a stock which is simultaneously traded on two or more venues, either because its company is cross-listed or because regulation allows multi-trading. We set the idea that these venues are 'indirectly' connected and represent a network. If the 'importance' of a venue is traditionally measured by its isolated-centrality (e.g. trading volumes observed inside it), we introduce a network measure, the degree-centrality, which includes trading activity due to its connections with other stock markets. Using trading volume data of nearly 22,000 equities we study the dynamic of market centrality among the various European trading venues between 2005 and 2009. European Regulated Stock Exchanges (SEs) and Alternative Trading Venues (ATVs), introduced in Europe in 2007, are the nodes/vertexes of our network. We observe that the birth of European ATVs (Multi-lateral Trading Facilities, Systematic Internalisers and the OTC market) eroded the isolated-centrality of certain European SEs (particularly London), but not for all. In contrast, degree-centrality significantly increased for the majority of the 48 SEs analyzed, in favor of multi-markets coexistence. Moreover, European ATVs did not act as substitute to the secondary market for cross-listed shares. Paradoxically, our results show that for medium size European SEs, cross-listing trading activity Granger-causes multi-trading on European ATVs.

https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2081668_code1207572.pdf?abstractid=2081668&mirid=5

Stefania Vitali

Papers

Financial fragility and distress propagation in a network of regions

Sovereign Wealth Funds and Target Firms: Does 'Networking' Matter?

Exploratory analysis of safety data and their interrelationwith flight trajectories and network metrics

The Community Structure of the Global Corporate Network

Network Features of European Trading Venues