The contribution of the intra-firm exposures network to systemic risk

Abstract We propose to use a systemic risk metric for an extended network which includes the inter-bank network, the banks-firms bipartite network, and the intrafirm exposures network in Uruguay. This is the first work, to the best of our knowledge, in which the intra-firm exposures network is estimated with good accuracy by using information from a firm survey. Given that the survey only includes the three most relevant debtors and creditors, we complete the full intra-firm exposures matrix by resorting to Maximum Entropy, Minimum Density and a new method which takes into account the known entries of the matrix obtained from the survey. We show that ignoring intra-firm exposures results in an important underestimation of systemic risk. Moreover, if the marginal liabilities are used as an indicator of the systemic relevance of firms, important network effects are ignored. To conclude, the paper contributes with a precise estimation of the impact of intra-firm exposures to overall systemic risk.

[1]  G. Caldarelli,et al.  DebtRank: Too Central to Fail? Financial Networks, the FED and Systemic Risk , 2012, Scientific Reports.

[2]  R. Mantegna,et al.  Bank-Firm Credit Network in Japan: An Analysis of a Bipartite Network , 2014, PloS one.

[3]  Martin G. Everett,et al.  A Graph-theoretic perspective on centrality , 2006, Soc. Networks.

[4]  Guido Caldarelli,et al.  Bootstrapping Topological Properties and Systemic Risk of Complex Networks Using the Fitness Model , 2012, Journal of Statistical Physics.

[5]  Serafín Martínez-Jaramillo,et al.  Financial networks and stress testing: Challenges and new research avenues for systemic risk analysis and financial stability implications , 2018 .

[6]  Biliana Alexandrova-Kabadjova,et al.  An Empirical Study of the Mexican Banking System's Network and Its Implications for Systemic Risk , 2012 .

[7]  Andrea Barón.  Commercial and financial debt network in Uruguay∗ , 2019 .

[8]  Yoshi Fujiwara,et al.  DebtRank Analysis of the Japanese Credit Network , 2013 .

[9]  Ufuk Akcigit,et al.  Networks and the Macroeconomy: An Empirical Exploration , 2015, NBER Macroeconomics Annual.

[10]  Benjamin Miranda Tabak,et al.  Network structure analysis of the Brazilian interbank market , 2016 .

[11]  Rodney Garratt,et al.  The missing links : A global study on uncovering fi nancial network structures from partial data 夽 , 2018 .

[12]  M. Newman,et al.  Statistical mechanics of networks. , 2004, Physical review. E, Statistical, nonlinear, and soft matter physics.

[13]  M. Elliott,et al.  Financial Networks and Contagion , 2014 .

[14]  Benjamin Miranda Tabak,et al.  Bank lending and systemic risk: A financial-real sector network approach with feedback , 2017, Journal of Financial Stability.

[15]  Subal C. Kumbhakar,et al.  Estimation of TFP growth: a semiparametric smooth coefficient approach , 2012 .

[16]  Sergio Rubens Stancato de Souza,et al.  Insolvency and contagion in the Brazilian interbank market , 2015 .

[17]  Diego Garlaschelli,et al.  Analytical maximum-likelihood method to detect patterns in real networks , 2011, 1103.0701.

[18]  Guido Caldarelli,et al.  DebtRank: A Microscopic Foundation for Shock Propagation , 2015, PloS one.

[19]  S. Battiston,et al.  Bootstrapping topology and systemic risk of complex network using the fitness model , 2021 .

[20]  M. Gallegati,et al.  Bank–firms topology in Italy , 2012 .

[21]  Stefan Thurner,et al.  Identifying Systemically Important Companies by Using the Credit Network of an Entire Nation , 2018, Entropy.

[22]  Duc Thi Luu,et al.  Multilayer overlaps and correlations in the bank-firm credit network of Spain , 2019, Quantitative Finance.

[23]  T. Lux.  A model of the topology of the bank – firm credit network and its role as channel of contagion , 2016 .

[24]  Chris U. Carmona,et al.  Interconnectedness and financial stability , 2019 .

[25]  B. Greenwald,et al.  An Analysis of the Japanese Credit Network , 2009, 0901.2384.

[26]  Networks and the Macroeconomy: An Empirical Exploration , 2016, NBER Macroeconomics Annual.

[27]  Christian Upper,et al.  Estimating Bilateral Exposures in the German Interbank Market: Is There a Danger of Contagion? , 2002, SSRN Electronic Journal.

[28]  Kartik Anand,et al.  Filling in the blanks: network structure and interbank contagion , 2014, SSRN Electronic Journal.

[29]  Interbank Connections, Contagion and Bank Distress in the Great Depression , 2019, SSRN Electronic Journal.

[30]  F. Caccioli,et al.  Reconstructing and Stress Testing Credit Networks , 2017, Journal of Economic Dynamics and Control.

[31]  M. A. Muñoz,et al.  Scale-free networks from varying vertex intrinsic fitness. , 2002, Physical review letters.

[32]  F. Caccioli,et al.  Systemic risk and other interdependencies among banks in Bolivia , 2020 .