Network efficiency and the banking system

Inspired by the Coasean “market versus firm” dichotomy, we offer a new definition of efficiency by applying the notions of network cost and network efficiency as developed in complex network theory. Network analysis is relevant for every system of interconnected exchanging agents. One such system is the banking sector. It is showed that the notions hereby presented may improve upon the results of Allen and Gale’s standard model of the interbank market, where banks exchange liquidity and where troubles in a region of the market may lead to systemic collapse. © 2014, Springer-Verlag Berlin Heidelberg.