Arbeitspapier
The Formation of Financial Networks
Modern banking systems are highly interconnected. Despite their various benefits, the linkages that exist between banks carry the risk of contagion. In this paper we investigate how banks decide on direct balance sheet linkages and the implications for contagion risk. In particular, we model a network formation process in the banking system. The trade-off between the gains and the risks of being connected shapes banks ’incentives to form links. We show that banks manage to form networks that are resilient to contagion. Thus, in an equilibrium network, the probability of contagion is virtually 0.
- Language
-
Englisch
- Bibliographic citation
-
Series: Tinbergen Institute Discussion Paper ; No. 06-093/2
- Classification
-
Wirtschaft
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Asymmetric and Private Information; Mechanism Design
- Subject
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financial stability
network formation
contagion risk
Finanzsystem
Finanzkrise
Ansteckungseffekt
Unternehmensnetzwerk
- Event
-
Geistige Schöpfung
- (who)
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Babus, Ana
- Event
-
Veröffentlichung
- (who)
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Tinbergen Institute
- (where)
-
Amsterdam and Rotterdam
- (when)
-
2006
- Handle
- Last update
-
10.03.2025, 11:44 AM CET
Data provider
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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Babus, Ana
- Tinbergen Institute
Time of origin
- 2006
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