Applied systemic approach in the banking sector: financial contagion in the “cheques-as-collateral” network
The global financial crisis that started in 2007 epitomized the role of strong financial ties as a carrier for propagation of shocks. The rapid viral spreading of the financial turmoil from the US sub-prime mortgage market to mammoth international financial institutions manifested that global economy is based on numerous, strong, unexplored and unanticipated interdependencies among networks in credit, trade, investment and supply chains. Consequently, it is needed an innovative methodology that models the systemic risks of financial networks and that can be used to design effective policies to reduce conflicts between local and global interests.
In this context, a growing number of studies and conferences examine various aspects of financial networks and specifically, the modeling of systemic risk using mathematical network analysis. Current analysis is focused on interbank payment network flows in national and international level. In the banking sector analysis, existing credit scoring models account only for idiosyncratic customer’s financial profile and do not anticipate systemic risk factors (e.g. a potential domino effect caused by the bankruptcy of a central node-customer).
In our research, we extend the current analysis of interbank networks to intra-bank financial risk interconnections, namely the bank check payments network. Our model address and quantifies systemic default risk factors like chain bankruptcy caused by central customers of the bank checks network.
M. Vafopoulos and D. Soumpekas (2011), Applied systemic approach in the banking sector: the case of credit scoring through network analysis, HSSS 2011.