A multilevel analysis of financial institutions’ systemic exposure from local and system-wide information

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Résumé

In the aftermath of the financial crisis of 2007–2009, the growing body of literature on financial networks has widely documented the predictive power of topological characteristics (e.g., degree centrality measures) to explain the systemic impact or systemic exposure of financial institutions. This study shows that considering alternative topological measures based on local sub-network environment improves our ability to identify systemic institutions. To provide empirical evidence, we apply a two-step procedure. First, we recover network communities (i.e., close-peer environment) on a spillover network of financial institutions. Second, we regress alternative measures of vulnerability (i.e. firm’s losses)on three levels of topological measures: the global level (i.e., firm topological characteristics computed over the whole system), local level (i.e., firm topological characteristics computed over the community to which it belongs), and aggregated level by averaging individual characteristics over the community. The sample includes 46 financial institutions (banks, broker-dealers, and insurance and real-estate companies) listed in the Standard & Poor’s 500 index. Our results confirm the informational content of topological metrics based on a close-peer environment. Such information is different from that embedded in traditional system-wide topological metrics and can help predict distress of financial institutions in times of crisis.

langue originaleAnglais
Numéro d'article17657
Pages (de - à)17657
journalScientific Reports
Volume10
Numéro de publication1
Les DOIs
Etat de la publicationPublié - 19 oct. 2020

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