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Publication Detail
DebtRank: Too central to fail? Financial networks, the FED and systemic risk
  • Publication Type:
    Journal article
  • Publication Sub Type:
    Journal Article
  • Authors:
    Battiston S, Puliga M, Kaushik R, Tasca P, Caldarelli G
  • Publication date:
    15/08/2012
  • Journal:
    Scientific Reports
  • Volume:
    2
  • Status:
    Published
Abstract
Systemic risk, here meant as the risk of default of a large portion of the financial system, depends on the network of financial exposures among institutions. However, there is no widely accepted methodology to determine the systemically important nodes in a network. To fill this gap, we introduce, DebtRank, a novel measure of systemic impact inspired by feedback-centrality. As an application, we analyse a new and unique dataset on the USD 1.2 trillion FED emergency loans program to global financial institutions during 2008g-2010. We find that a group of 22 institutions, which received most of the funds, form a strongly connected graph where each of the nodes becomes systemically important at the peak of the crisis. Moreover, a systemic default could have been triggered even by small dispersed shocks. The results suggest that the debate on too-big-to-fail institutions should include the even more serious issue of too-central-to-fail.
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