Financial networks as a source of systemic instability

Artikel

Systemic risk is a fundamental constituent of contemporary financial systems. For the past decades a growing number of abrupt upsets in financial systems could be observed. Due to previous experiences, politicians and regulators prefer to identify the off enders outside the system or to blame one of the entities inside the system. However, nowadays many disasters in anthropogenic systems cannot be perceived that way. They are open results of inappropriate interactions rather than external or internal impulses. This requires a paradigm shift in thinking about systemic risk. A component-oriented perspective should be nowadays replaced with a network-oriented view. Closer insight into the concept of systemic risk can refer to the model of the system composed of a huge number of interconnected components. In such a system, systemic risk is usually considered to have a 'cascading', 'domino' or 'contagion' effect, resulting from strong connections. An initial failure could have disastrous effects and cause extreme damage as the number of network nodes goes to infinity. Strongly interconnected, complex dynamic systems cannot be understood by the simple sum of their components' properties, in contrast to loosely coupled systems. What makes the behaviour of complex financial systems particularly unpredictable is that systemic failures may occur even if everybody involved is highly skilled, highly motivated and behaving properly.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: e-Finanse: Financial Internet Quarterly ; ISSN: 1734-039X ; Volume: 12 ; Year: 2016 ; Issue: 3 ; Pages: 59-68 ; Rzeszów: University of Information Technology and Management

Classification and Topics

• Classification: Wirtschaft ; Network Formation and Analysis: Theory ; Financial Markets and the Macroeconomy ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financial Institutions and Services: Government Policy and Regulation ; Transactional Relationships; Contracts and Reputation; Networks
• Subject: systemic risk ; financial system ; network ; contagion

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Zieliński, Tomasz
• Event: Veröffentlichung
• (who): University of Information Technology and Management
• (where): Rzeszów
• (when): 2016

Further information

• DOI: doi:10.1515/fiqf-2016-0002
• Handle: http://hdl.handle.net/10419/197440
• Last update: 10.03.2025, 11:41 AM CET