This seminar is hosted by the Cabdyn Complexity Centre

Speaker: Dr Lavan Mahadeva, Senior Research Fellow, Oxford Institute for Energy Studies, University of Oxford

Convenor: Felix Reed-Tsochas, Director, Oxford Martin Programme on Complexity

Abstract: Systemic risk among the network of international banking groups arises when financial stress threatens to crisscross many national boundaries and expose imperfect international coordination. To assess this risk, we use Rosvall and Bergstrom’s (PNAS, 2008, 1118-1123) information theoretic map equation to partition banking groups from 21 countries into modules. We consider a quarter of a century of data on the cross-border interbank market. We show that in the late 1980s four important financial centres formed one large super cluster that was highly contagious in terms of transmission of stress within its ranks, but less contagious on a global scale. But the expansion leading to the 2008 crisis left more transmitting hubs sharing the same total influence as a few large modules had previously. We show that this greater entanglement meant the network was more broadly contagious, and not that risk was more shared. Thus, our analysis contributes to our understanding as to why defaults in US sub-prime mortgages spread quickly through the network. Lavan will also present some other examples of interconnectedness in the recent crisis to stimulate discussion.

Venue: Seminar room A, Saïd Business School

Sandwiches and drinks will be provided