# The spread of a financial virus through Europe and beyond

## TL;DR

This paper models how financial crises spread across Europe and beyond using epidemiological methods, highlighting the role of certain countries as sources of systemic risk and demonstrating contagion dynamics through simulations.

## Contribution

It introduces an epidemiological model to analyze financial contagion across countries using bilateral foreign claims data, revealing key sources of systemic risk.

## Key findings

- Certain countries act as primary sources of financial contagion.
- Financial contagion can be simulated using multi-agent models.
- Countries experiencing debt crises pose systemic risks.

## Abstract

We analyse the importance of international relations between countries on the financial stability. The contagion effect in the network is tested by implementing an epidemiological model, comprising a number of European countries and using bilateral data on foreign claims between them. Banking statistics of consolidated foreign claims on ultimate risk bases, obtained from the Banks of International Settlements, allow us to measure the exposure of contagion spreading from a particular country to the other national banking systems. We show that the financial system of some countries, experiencing the debt crisis, is a source of global systemic risk because they threaten the stability of a larger system, being a global threat to the intoxication of the world economy and resulting in what we call a `financial virus'. Illustrative simulations were done in the NetLogo multi-agent programmable modelling environment and in MATLAB.