Analysis of Financial Contagion in Banking Networks

Economics is seen as a complex network with links to all the economic entities that make up it. Any changes occurring in this network may generate shocks that either are not very visible at the macroeconomic level, but can greatly affect this level, or microeconomic shocks may occur with the spread across the entire economic chain. In recent years, bank accidents have led to a significant disruption to the financial system around the world. Including the 2008 economic crisis has demonstrated that we need to better understand financing networks and systemic risk. The complexity of current financial systems around the world makes it difficult to create indicators that accurately assess the systemic risk of any institution. One of the most important issues that have been highlighted in recent years has been the interconnection of banks in the financial network. This leads to an increase in the likelihood of contagion, a scenario where small shocks, which initially only affected a party of institutions in the system, spread across the network. In a globalizing context, financial contagion is a phenomenon of topicality characterized by the virulence and rapidity with which financial crises are transmitted from one economy to another in a more interconnected world. This article aims to analyze the phenomenon of financial contagion and systemic risk in banking networks from the theoretical perspective and the level of practical research, in order to highlight the vulnerability of financial systems and the need for adequate predencial regulation.