Title: Complexity of Measuring Global Stability of Banking Networks
Speaker: Bhaskar DasGupta, UIC
Date: Wednesday, October 22, 2014 11:00-12:00pm
Location: CoRE Bldg, Room 301A, Rutgers University, Busch Campus, Piscataway, NJ
Threats on the stability of a financial system may severely affect the functioning of the entire economy, and thus considerable emphasis is placed on the analyzing the cause and effect of such threats. The financial crisis in the current and past decade has shown that one important cause of instability in global markets is the so-called financial contagion, namely the so-called financial contagion process in which failures of few individual banks propagate through the "web of banking dependencies" to affect a significant part of the entire financial system. Motivated by such observations, we consider the problem of defining and evaluating stabilities of both homogeneous and heterogeneous banking networks against propagation of synchronous idiosyncratic shocks given to a subset of banks. We formalize the homogeneous banking network model of Nier et al. and its corresponding heterogeneous version, formalize the synchronous shock propagation procedures, define two appropriate stability measures and investigate the computational complexities of evaluating these measures for various network topologies and parameters of interest. Time permitting, we will also discuss empirical evaluation of our global stability measure for several classes of banking networks, and some interesting implications of our evaluations.