Social Network View of Financial System

  • network effects matter to financial stability because shocks get amplified through cascading effects
  • banking network made of a small number of large, interconnected banks with very similar business models and risk profiles. Bank defaults are highly correlated
    • creates moral hazard problem as each bank knows that if it defaults, other banks likely will too and the gov is likely to intervene
  • few companies exerting significant control

    Our results show that, globally, top holders are at least in the position to exert considerable control, either formally (e.g., voting in shareholder and board meetings) or via informal negotiations. - The Network of Global Corporate Control Vitali et al 2011


Related: economics | Ecological Economics | Social Ecological Systems (SES) | complex adaptive systems #academic