Systemic risk in financial networks with two central institutions

Majeed, Mariwan Marif; Salavati, Erfan; Naghshineh Arjmand, Omid

doi:10.22060/ajmc.2024.23128.1232

Systemic risk in financial networks with two central institutions

Document Type : Original Article

Authors

Mariwan Marif Majeed ¹^{, 2}

Erfan Salavati ¹

Omid Naghshineh Arjmand ¹

¹ Department of Mathematics and Computer Science, Amirkabir University of Technology (Tehran Polytechnic), Tehran, Iran

² Department of Mathematical Sciences, College of Basic Education, University of Sulaimani, Sulaymaniyah, Iraq

10.22060/ajmc.2024.23128.1232

Abstract

Systemic risk in the interbank market is the topic of this article. This market is modeled as a directed graph, where the edges are the bank-to-bank liabilities and bank-to-end users liabilities and the nodes are the banks. Our study extends the modeling paradigm of Amini et al. [3] by adding a second Central node to the system and using the equilibrium equation of the Veraart et al. [11] with some modifications that are better suited to our model. We study the effects of two central nodes on a financial network. It is evident that two central nodes can reduce the end-users shortfall and increase the predicted surplus of the banks when compared to a single central node. We provide a few straightforward examples to demonstrate our findings.

Keywords

Financial network

Central node

End user

Aggregate surplus

Subjects

Mathematical Finance

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