Social dynamics of financial networks

Abstract

The global financial crisis in 2007-2009 demonstrated that systemic risk can spread all over the world through a complex web of financial linkages, yet we still lack fundamental knowledge about the evolution of the financial web. In particular, interbank credit networks shape the core of the financial system, in which a time-varying interconnected risk emerges from a massive number of temporal transactions between banks. The current lack of understanding of the mechanics of interbank networks makes it difficult to evaluate and control systemic risk. Here, we uncover fundamental dynamics of interbank networks by seeking the patterns of daily transactions between individual banks. We find stable interaction patterns between banks from which distinctive network-scale dynamics emerge. In fact, the dynamical patterns discovered at the local and network scales share common characteristics with social communication patterns of humans. To explain the origin of "social" dynamics in interbank networks, we provide a simple model that allows us to generate a sequence of synthetic daily networks characterized by the observed dynamical properties. The discovery of dynamical principles at the daily resolution will enhance our ability to assess systemic risk and could contribute to the real-time management of financial stability.

7 pages, 5 figures, SI included

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Cited by in corpus (6)

• The structured backbone of temporal social ties
• Identifying relationship lending in the interbank market: A network approach
• Two types of densification scaling in the evolution of temporal networks
• The switching mechanisms of social network densification
• Extracting the multi-timescale activity patterns of online financial markets
• Identifying the temporal dynamics of densification and sparsification in human contact networks