Systemic Risk in Financial Networks: A Survey

49 Pages Posted: 24 Aug 2020 Last revised: 26 Mar 2021

See all articles by Matthew O. Jackson

Matthew O. Jackson

Stanford University - Department of Economics; Santa Fe Institute

Agathe Pernoud

Stanford University - Department of Economics

Date Written: July 15, 2020

Abstract

We provide an overview of the relationship between financial networks and systemic risk. We present a taxonomy of different types of systemic risk, differentiating between direct externalities between financial organizations (e.g., defaults, correlated portfolios and firesales), and perceptions and feedback effects (e.g., bank runs, credit freezes). We also discuss optimal regulation and bailouts, measurements of systemic risk and financial centrality, choices by banks' regarding their portfolios and partnerships, and the changing nature of financial networks.

Keywords: Financial Networks, Markets, Systemic Risk, Financial Crises, Correlated Portfolios, Networks, Banks, Default Risk, Credit Freeze, Bank Runs, Shadow Banking, Supply Chains, Compression, Financial Bubbles

JEL Classification: D85, F15, F34, F36, F65, G15, G32, G33, G38

Suggested Citation

Jackson, Matthew O. and Pernoud, Agathe, Systemic Risk in Financial Networks: A Survey (July 15, 2020). Available at SSRN: https://ssrn.com/abstract=3651864 or http://dx.doi.org/10.2139/ssrn.3651864

Matthew O. Jackson (Contact Author)

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
1-650-723-3544 (Phone)

HOME PAGE: http://www.stanford.edu/~jacksonm

Santa Fe Institute

1399 Hyde Park Road
Santa Fe, NM 87501
United States

Agathe Pernoud

Stanford University - Department of Economics ( email )

Landau Economics Building
579 Serra Mall
STANFORD, CA 94305-6072
United States

HOME PAGE: http://web.stanford.edu/~agathep

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