Untying Interconnectedness: Topology, Stability and the Post-crisis Reforms

16 Pages Posted: 27 Apr 2020

Date Written: April 1, 2020

Abstract

‘Interconnectedness’ was considered to be a cause of the 2008 financial crisis, stimulating a number of studies into the topology of financial markets. Yet the analysis of instability within networks has tended to focus on a type of ‘contagion’ which imagines serial insolvencies, with non-performance of due obligations causing solvency issues for connected institutions. A more realistic assessment of the 2008 crisis was that it was due to a drying-up of available cash. A taxonomy of contagion is proposed, and the illiquidity model of contagion is then analyzed with reference to the observed core-periphery structure of financial market networks. Finally, the post-crisis reforms are judged against the view of ‘interconnectedness’ which emerges.

Keywords: Interconnectedness, network, 2008 crisis, liquidity, clearing

JEL Classification: D53, D85, G21, G33

Suggested Citation

Turing, Dermot, Untying Interconnectedness: Topology, Stability and the Post-crisis Reforms (April 1, 2020). Available at SSRN: https://ssrn.com/abstract=3565870 or http://dx.doi.org/10.2139/ssrn.3565870

Dermot Turing (Contact Author)

Kellogg College, Oxford ( email )

60-62 Banbury Road
Oxford, OX2 6PN
United Kingdom

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