A Novel Banking Supervision Method Using the Minimum Dominating Set

14 Pages Posted: 29 Jan 2014

See all articles by Periklis Gogas

Periklis Gogas

Democritus University of Thrace - Department of Economics

Theophilos Papadimitriou

Department of Economics, Democritus University of Thrace

Maria Matthaiou

Democritus University of Thrace - Department of Economics

Date Written: January 27, 2014

Abstract

The magnitude of the recent financial crisis, which started from the U.S. and expanded in Europe, change the perspective on banking supervision. The recent consensus is that to preserve a healthy and stable banking network, the monitoring of all financial institutions should be under a single regulator, the Central Bank. In this paper we study the interrelations of banking institutions under the framework of Complex Networks. Specifically, our goal is to provide an auxiliary early warning system for the banking system's supervisor that would be used in addition to the existing schemes of control. We employ the Minimum Dominating Set (MDS) methodology to reveal the most strategically important banks of the banking network and use them as alarm triggers. By monitoring the MDS subset the regulators can have an overview of the whole network. Our dataset is formed from the 200 largest American banks and we examine their interconnection through their total deposits. The MDS concept is applied for the first time in this setting and the results show that it may be an essential supplementary tool to the arsenal of a Central Bank.

Keywords: Complex networks, Minimum Dominating Set, Bank supervision, Deposits, Banking

JEL Classification: C02, C69, G28, E58

Suggested Citation

Gogas, Periklis and Papadimitriou, Theophilos and Matthaiou, Maria, A Novel Banking Supervision Method Using the Minimum Dominating Set (January 27, 2014). Available at SSRN: https://ssrn.com/abstract=2386155 or http://dx.doi.org/10.2139/ssrn.2386155

Periklis Gogas (Contact Author)

Democritus University of Thrace - Department of Economics ( email )

Komotini, 69100
Greece

HOME PAGE: http://www.econ.duth.gr/personel/dep/gkogkas/index.en.shtml

Theophilos Papadimitriou

Department of Economics, Democritus University of Thrace ( email )

University Campus
Komotini, 69100
Greece

HOME PAGE: http://econ.duth.gr/author/papadimi/

Maria Matthaiou

Democritus University of Thrace - Department of Economics ( email )

Komotini
Greece

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