Default contagion risks in Russian interbank market

TL;DR

This paper investigates systemic default contagion risks in the Russian interbank market using a probabilistic model that incorporates the network's bow-tie structure, degree distributions, and disassortativity, aligning with stress test results.

Contribution

It introduces a novel probabilistic model that explicitly accounts for the empirical bow-tie network structure and node functionality in assessing contagion risks.

Findings

Model's systemic risk estimates agree with stress test results

Network structure significantly influences contagion dynamics

Empirical data enhances model accuracy

Abstract

Systemic risks of default contagion in the Russian interbank market are investigated. The analysis is based on considering the bow-tie structure of the weighted oriented graph describing the structure of the interbank loans. A probabilistic model of interbank contagion explicitly taking into account the empirical bow-tie structure reflecting functionality of the corresponding nodes (borrowers, lenders, borrowers and lenders simultaneously), degree distributions and disassortativity of the interbank network under consideration based on empirical data is developed. The characteristics of contagion-related systemic risk calculated with this model are shown to be in agreement with those of explicit stress tests.