Do network characteristics affect systemic risk? Evidence from the European banking system

Systemic risk is one of the main concerns for banks charged with maintaining overall financial stability. This paper adopts the minimum density method to construct an interbank lending network for European banks and examines how the network structure affects systemic risk. The result reveals that banks positioned at the core of the network exhibit higher levels of systemic risk. Moreover, we find that banks with higher network centrality can show larger systemic risk during times of distress. We demonstrate the robustness of our results by addressing potential endogeneity in the model, replacing network characteristics, and reconstructing the interbank network.