Financial Bridges and Network Communities
47 Pages Posted: 14 May 2018 Last revised: 16 Apr 2019
Date Written: September 29, 2018
We analyze the global financial crisis and the European sovereign debt crisis showing that the European network exhibits a strong community structure with two main blocks acting as shock spreader and receiver, respectively. We provide evidence of the prominent role played by insurances in the spread of systemic risk in both crises and demonstrate that institutions with a large number of inter-community linkages (community bridges) are more relevant in spreading contagion than institutions with large centrality. Network measures based on the community structure can provide a better description of the financial connectedness and effective early warning indicators for financial losses.
Keywords: Systemic Risk, Financial Institutions, Network Communities, Financial Crises
JEL Classification: G12, G29, C51
Suggested Citation: Suggested Citation