Partially Overlapping Ownership and Contagion in Financial Networks. (6th November 2017)

• Record Type: Journal Article
• Authors: Pollak, Micah; Guan, Yuanying
• Other Names: Sensoy Ahmet Academic Editor.
• Is Part Of: Complexity. Volume 2017(2017)
• Publication Date: 2017-11-06
• Subjects: Chaotic behavior in systems -- Periodicals; Complexity (Philosophy) -- Periodicals; 003
• DOI: 10.1155/2017/9895632
• Languages: English
• ISSNs: 1076-2787

Abstract

Abstract : Using historical banking data for the United States from the years 2000 to 2015 we characterize the probability and extent of a financial contagion using a calibrated network model of heterogeneous interbank exposures. Both the probability and the average extent of a contagion begin to rise in 2007 prior to the US financial crisis. Including a common asset in the model increases both the probability and extent of contagion, especially during the years of the financial crisis. Based on rising institutional ownership in the banking industry, we introduce a partially overlapping ownership asset that devalues endogenously. The addition of this asset increases the extent of a financial contagion. Our results show that trends in capital buffers and the distribution and type of assets have a significant effect on the predictions of financial network contagion models and that the rising trend in ownership of banks by banks amplifies shocks to the financial system.