The systemic risk of a single firm - CSH

The systemic risk of a single firm


Oct 22, 2018

Financial and non-financial firms need the same strong regulations to protect economies

 

Researchers at IIASA and the Complexity Science Hub, Vienna, have discovered that non-financial firms, such as vehicle manufacturers and energy companies, contribute to systemic risk in financial systems in the same way as financial institutions like banks, and as such, should be regulated in the same way.

 

[Press release by CSH member IIASA]

 

Systemic risk is the chance that a crisis at one institution could lead to the collapse of an entire financial system. The financial crisis in 2008 was triggered by the failure of a single bank, and in response to this, a new international regulatory framework was introduced to improve regulation and risk management, known as Basel III. The framework calls for stronger regulation of systemically important financial institutions (SIFIs) and recommends, for example, increased capital requirements, so-called SIFI surcharges, for them. However, such regulations are not applied to non-financial firms. Researcher Sebastian Poledna and his colleagues argue that such macro-prudential regulations should be applied to all systemically important companies, whether financial or non-financial.

 

The work is the first to study the systemic importance of non-financial firms.

 

“The mechanisms of how a financial crisis may lead to an economic recession, and vice versa, are not understood on a fundamental level. To clarify and map the financial ties between the financial and the real economy, which are at the core of such potential spreading mechanisms, are more important than ever,” says Stefan Thurner.

 

The team collected data on nearly all financial and non-financial firms in the Austrian economy. The data analyzed includes 80.2% of the liabilities, or debts, of firms to banks. It was collected from the financial statements of firms and banks in Austria, and anonymized interbank liabilities from the Austrian banking system. The researchers then reconstructed the financial network between 796 banks and 49,363 firms, effectively the Austrian national economy in 2008. Poledna says that to their knowledge, this is the most comprehensive financial network ever analyzed.

 

The next step was to identify systemically important firms, for which the researchers used a previously developed method called DebtRank. This gives each firm a number based on the fraction of the economic value in a network that will be affected if that firm is in distress. The highest-ranking firms are generally large banks with substantial total assets. In the Austrian economy, those with the highest DebtRank are, unsurprisingly, large banks, but the eighth most systemically important firm is non-financial. The firm in question has a DebtRank of 0.39, meaning that if it defaulted, up to 39% of the Austrian economy would be affected.

 

Systemically important firms came from multiple industries, and were not all large. The researchers identified a number of mid-sized firms, with assets worth less than €1 billion, that are systemically important in the Austrian economy. This was previously unknown.

 

Poledna and his colleagues additionally looked at the fraction of systemic risk coming from non-financial firms in the liability network, by dividing the sum of their DebtRank values by the total number of firms. They found that non-financial firms introduce more systemic risk than the financial sector, with 55% of systemic risk comes from non-financial firms. This strengthens the argument for regulations for SIFIs to be applied more widely.

 

The method used is broadly applicable. “The results of this work could be the basis for a new approach to bank stress testing exercises that takes feedback effects between the real [goods and services] and financial economy into account,” says Poledna. “Bank stress testing exercises assess the impact of risk drivers on the solvency of banks and are typically conducted without considering feedback effects between banks or between banks and the real economy.”

 

 

Reference

Poledna S, Hinteregger A, Thurner S (2018) Identifying Systemically Important Companies by Using the Credit Network of an Entire Nation. Entropy DOI: 10.3390/e20100792 [pure.iiasa.ac.at/id/eprint/15540/]

 

 

 


Event

CSH Workshop: “Information-theoretic Methods for Complexity Science”


Apr 29, 2019May 01, 2019

Complexity Science Hub Vienna

Event

CSH Talk by Tom Carlowitz


Nov 28, 2018 | 15:0016:00

Complexity Science Hub Vienna

Event

CSH Talk by Michael Miess: “Economic forecasting with DSGE models – an evaluation and critique”


Nov 16, 2018 | 15:0016:00

Complexity Science Hub Vienna

Press

La scienziata Roberta Sinatra: “Così ho calcolato l’algoritmo dell’arte” [Italian]


Corriere della Sera, Nov 10, 2018

Press

Hotspots der heimischen Exzellenz


Die Presse, Nov 10, 2018

Event

CSH Talk by Dr. Belgin Mutlu: “Methods to Recommend and Personalize Visualizations”


Nov 30, 2018 | 15:0016:00

Complexity Science Hub Vienna

Press

Wie je kent, bepaalt succes kunstenaar [Dutch]


FAQT, Nov 9, 2018

Press

Studie: Erfolg in der Kunst ist eine Frage der richtigen Verbindungen


APA Science, Nov 8, 2018

News

Oct 25, 2018

We have a new member!

News

Oct 22, 2018

The systemic risk of a single firm

News

Oct 10, 2018

THE BOOK IS OUT!!!

News

Oct 5, 2018

New statistical tool kit fingerprints electoral fraud (not only) in Turkey [CSH Press Release]

Event

CSH Workshop: “Information-theoretic Methods for Complexity Science”


Apr 29, 2019May 01, 2019

Complexity Science Hub Vienna

Event

CSH Talk by Tom Carlowitz


Nov 28, 2018 | 15:0016:00

Complexity Science Hub Vienna

Event

CSH Talk by Michael Miess: “Economic forecasting with DSGE models – an evaluation and critique”


Nov 16, 2018 | 15:0016:00

Complexity Science Hub Vienna

Press

La scienziata Roberta Sinatra: “Così ho calcolato l’algoritmo dell’arte” [Italian]


Corriere della Sera, Nov 10, 2018

Press

Hotspots der heimischen Exzellenz


Die Presse, Nov 10, 2018

Event

CSH Talk by Dr. Belgin Mutlu: “Methods to Recommend and Personalize Visualizations”


Nov 30, 2018 | 15:0016:00

Complexity Science Hub Vienna

Press

Wie je kent, bepaalt succes kunstenaar [Dutch]


FAQT, Nov 9, 2018

Press

Studie: Erfolg in der Kunst ist eine Frage der richtigen Verbindungen


APA Science, Nov 8, 2018

News

Oct 25, 2018

We have a new member!

News

Oct 22, 2018

The systemic risk of a single firm

News

Oct 10, 2018

THE BOOK IS OUT!!!

News

Oct 5, 2018

New statistical tool kit fingerprints electoral fraud (not only) in Turkey [CSH Press Release]

News

Oct 25, 2018

We have a new member!

News

Oct 22, 2018

The systemic risk of a single firm

News

Oct 10, 2018

THE BOOK IS OUT!!!

News

Oct 5, 2018

New statistical tool kit fingerprints electoral fraud (not only) in Turkey [CSH Press Release]

News

Aug 1, 2018

D4Dairy: Big Data for healthier cows

News

Jul 30, 2018

“We need a revolution in modelling sustainability”

News

Jul 20, 2018

“The science for a world of processes”

News

Jul 19, 2018

“Reflect on the way we produce knowledge”

News

Jul 16, 2018

Ob in Kunst oder Wissenschaft: Nutze deine Erfolgssträhne! [CSH Press Release]

News

Jul 15, 2018

“Avoid centralized control in teams”

News

Jul 9, 2018

Start a new global movement: City Olympics

News

Jul 8, 2018

“Make cities great again”

Event

CSH Workshop: “Information-theoretic Methods for Complexity Science”


Apr 29, 2019May 01, 2019

Complexity Science Hub Vienna

Event

CSH Talk by Tom Carlowitz


Nov 28, 2018 | 15:0016:00

Complexity Science Hub Vienna

Event

CSH Talk by Michael Miess: “Economic forecasting with DSGE models – an evaluation and critique”


Nov 16, 2018 | 15:0016:00

Complexity Science Hub Vienna

Event

CSH Talk by Dr. Belgin Mutlu: “Methods to Recommend and Personalize Visualizations”


Nov 30, 2018 | 15:0016:00

Complexity Science Hub Vienna

Event

CSH Talk by Manfred Klaffenböck: “Facilitating Research in Visual Parameter Space Analysis through Rapid Suggestive Visualization Prototyping”


Nov 29, 2018 | 14:0015:00

Complexity Science Hub Vienna

Event

CSH Talk by Simon Schweighofer: “The Measurement of Meaning”


Nov 23, 2018 | 15:0016:30

Complexity Science Hub Vienna

Talk

“Scaling expansions: Universal tool for classification of complex systems”


Jan Korbel.

Nov 14, 2018 | 8:0017:00

Czech Technical University

Talk

“Analyzing gender inequality through large-scale Facebook advertising data”


Nov 15, 2018 | 14:0016:00

MTA Research House

Talk

“Analyzing Gender Inequality Through Large-scale Facebook Advertising Data”


David Garcia.

Nov 08, 2018 | 16:3017:00

BITZ

Talk

“Understanding and predicting disease by means of multiplex comorbidity networks”


Peter Klimek.

Nov 06, 2018 | 17:3018:00

De Rechtbank & Court Hotel

Visitor

Mirta Galesic, Santa Fe Institute


Dec 19, 2018Dec 20, 2018

Event

CSH Talk by Rudolf Hanel: “Understanding driven and irreversible processes”


Nov 09, 2018 | 15:0016:30

Complexity Science Hub Vienna

Press

La scienziata Roberta Sinatra: “Così ho calcolato l’algoritmo dell’arte” [Italian]


Corriere della Sera, Nov 10, 2018

Press

Hotspots der heimischen Exzellenz


Die Presse, Nov 10, 2018

Press

Wie je kent, bepaalt succes kunstenaar [Dutch]


FAQT, Nov 9, 2018

Press

Studie: Erfolg in der Kunst ist eine Frage der richtigen Verbindungen


APA Science, Nov 8, 2018

Press

Experten: “Der Krieg um IT-Sicherheit ist verloren”


APA Science, Nov 8, 2018

Press

Österreichische Rinderzucht: Projekt D4Dairy gestartet


Börse-Express, Nov 8, 2018

Press

What Does a Crooked Election Look Like?


Scientific American, Oct 30, 2018

Press

“Internet der Kühe” soll Gesundheit von Tier und Mensch verbessern


APA Science, Nov 5, 2018

Press

America is edging closer to civil war


The Sunday Times, Oct 28, 2018

Press

Election fraud returns to Turkish agenda as local polls approach


Ahval News, Nov 1, 2018

Press

Rom und China: Ausfall überregionaler Verbindungen ließ Weltreiche straucheln


Der Standard Online, Oct 28, 2018

Press

Thurner, Hanel, and Klimek write the book on complex systems


Santa Fe Institute, Oct 26, 2018