Valentina Macchiati, Giuseppe Brandi, Tiziana Di Matteo, Daniela Paolotti, Guido Caldarelli & Giulio Cimini 

Journal of Economic Interaction and Coordination (2021)

Systemic liquidity risk, defined by the International Monetary Fund as “the risk of simultaneous liquidity difficulties at multiple financial institutions,” is a key topic in financial stability studies and macroprudential policy-making. In this context, the complex web of interconnections of the interbank market plays the crucial role of allowing funding liquidity shortages to propagate between financial institutions. Here, we introduce a simple yet effective model of the interbank market in which liquidity shortages propagate through an epidemic-like contagion mechanism on the network of interbank loans. The model is defined by using aggregate balance sheet information of European banks, and it exploits country and bank-specific risk features to account for the heterogeneity of financial institutions. Moreover, in order to obtain the European-wide topology of the interbank network, we define a block reconstruction method based on the exchange flows between the various countries. We show that the proposed contagion model is able to estimate systemic liquidity risk across different years and countries. Results suggest that our effective contagion approach can be successfully used as a viable alternative to more realistic but complicated models, which not only require more specific balance sheet variables with high time resolution but also need assumptions on how banks respond to liquidity shocks.

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Prasan Ratnayake, Sugandima Weragoda, Janaka Wansapura, Dharshana Kasthurirathna and Mahendra Piraveenan

Mathematics 2021, 9(21), 2769;

The robustness of a complex network measures its ability to withstand random or targeted attacks. Most network robustness measures operate under the assumption that the nodes in a network are homogeneous and abstract. However, most real-world networks consist of nodes that are heterogeneous in nature. In this work, we propose a robustness measure called fitness-incorporated average network efficiency, that attempts to capture the heterogeneity of nodes using the ‘fitness’ of nodes in measuring the robustness of a network. Further, we adopt the same measure to compare the robustness of networks with heterogeneous nodes under varying topologies, such as the scale-free topology or the Erdős–Rényi random topology. We apply the proposed robustness measure using a wireless sensor network simulator to show that it can be effectively used to measure the robustness of a network using a topological approach. We also apply the proposed robustness measure to two real-world networks; namely the CO2 exchange network and an air traffic network. We conclude that with the proposed measure, not only the topological structure, but also the fitness function and the fitness distribution among nodes, should be considered in evaluating the robustness of a complex network.

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