Analyzing Systemic Risk with Financial Networks: An application during a financial crash

by Saltoglu Burak of the Bogazici University, and
Yenilmez Taylan of the Tinbergen Institute

November 14, 2010

Abstract: A financial network model, where the coded identity of the counterparties of every trade is known, is applied to both stable and crisis periods in a large and liquid overnight repo market in an emerging market economy. We have analyzed the financial crisis by using various network investigation tools such as links, interconnectivity, and reciprocity. In addition, we proposed a centrality measure to monitor and detect the 'systemically important financial institution' in the financial system. We have shown that our measure gives strong signals much before the crisis.

JEL Classification: F3, G1, D8.

Keywords: systemic risk, financial regulation, financial crisis, BASEL III, systemically important financial institution, Turkey, IMF

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