Systemic Risk Propagation in Bank-Asset Network: New Perspective on Japanese Banking Crisis in the 1990s

IMA Journal of Complex Networks (2015)

20 Pages Posted: 21 Apr 2015

See all articles by Yohei Sakamoto

Yohei Sakamoto

Kyoto University

Irena Vodenska

Boston University Metropolitan College

Date Written: April 19, 2015

Abstract

The Japanese banking crisis in the late 1990s has been considered a significant turning point in the history of Japanese banking system and has attracted researcher’s interest to study the increase of bad debt on Japanese banks’ balance sheets leading to the crisis of the 1990s. Here we investigate the risk propagating through a bipartite banking network consisting of two kinds of nodes: assets and banks. Using Cascading Failure Model (CFM) for describing the propagation of failures in the network, we attempt to understand the main culprit provoking the crisis and the systemic conditions for amplifying or repressing the “chain reaction” of bankruptcies. We found that the asset “Loans on Bills” is not only the main culprit for the Japanese banking crisis of 1990s but also a critical separator for banks’ survival. An abrupt change of the number of bankruptcies is also observed for a small changes of liquidity of the assets. This indicates that it is important to consider not only individual banks’ asset portfolios but also systemic risk propagation or connections between banks for protecting financial institutions against cascading failures.

Keywords: Bipartite network, Cascading Failure Model, Japanese banking Crisis, Risk Propagation

JEL Classification: C12, C51

Suggested Citation

Sakamoto, Yohei and Vodenska, Irena, Systemic Risk Propagation in Bank-Asset Network: New Perspective on Japanese Banking Crisis in the 1990s (April 19, 2015). IMA Journal of Complex Networks (2015). Available at SSRN: https://ssrn.com/abstract=2596324

Yohei Sakamoto (Contact Author)

Kyoto University ( email )

Yoshida-Honmachi
Sakyo-ku
Kyoto, 606-8501
Japan

Irena Vodenska

Boston University Metropolitan College ( email )

808 Commonwealth Avenue
Boston, MA 02115
United States

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