Assessing the risk of default propagation in interconnected sectoral financial networks

Alex Arenas, Adrià Barja, Pablo Fleurquin, Alejandro Martínez, Jordi Nin Guerrero, José J. Ramasco, Elena Tomás

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Resum

Systemic risk of financial institutions and sectoral companies relies on their inter-dependencies. The inter-connectivity of the financial networks has proven to be crucial to understand the propagation of default, as it plays a central role to assess the impact of single default events in the full system. Here, we take advantage of complex network theory to shed light on the mechanisms behind default propagation. Using real data from the BBVA, the second largest bank in Spain, we extract a financial network from customer-supplier transactions among more than 140,000 companies, and their economic flows. Then, we introduce a computational model, inspired by the probabilities of default contagion, that allow us to obtain the main statistics of default diffusion given the network structure at individual and system levels. Our results show the exposure of different sectors to default cascades, therefore allowing for a quantification and ranking of sectors accordingly. This information is relevant to propose countermeasures to default propagation in specific scenarios.
Idioma originalCastellà
Pàgines (de-a)422-442
RevistaEPJ Data Science
Volum8
DOIs
Estat de la publicacióPublicada - 1 de des. 2019

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