Abstract
The magnitude of the recent financial crisis, which started from the USA and expanded in Europe, changes the perspective on banking supervision. The recent consensus is that to preserve a healthy and stable banking network, the monitoring of all financial institutions should be under a single regulator, the Central Bank. In this paper we study the interrelations of banking institutions under the framework of Complex Networks. Specifically, our goal is to provide an auxiliary early warning system for the banking system’s supervisor that would be used in addition to the existing schemes of control. We employ the Minimum Dominating Set (MDS) methodology to reveal the most strategically important banks of the banking network and use them as alarm triggers. By monitoring the MDS subset the regulators can have an overview of the whole network. Our dataset is formed from the 200 largest American banks and we examine their interconnection through their total deposits. The MDS concept is applied for the first time in this setting and the results show that it may be an essential supplementary tool to the arsenal of a Central Bank.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
References
Allen, F., Gale, D.: Financial contagion. J. Polit. Econ. 108, 1–33 (2000)
Angelini, P., Maresca, G., Russo, D.: Systemic risk in the netting system. J. Bank. Finance 20, 853–868 (1996)
Blinder, A.S.: How central should the Central Bank be. CEPS WP198, 1–20 (2010)
Boss, M., Elsinger, H., Summer, M., Thurner, S.: Network topology of the interbank market. Quant. Finance 4, 677–684 (2004)
Boyer, P.C., Ponce, J.: Regulatory capture and Banking supervision reform. J. Financ. Stabil. 8, 206–217 (2012)
Chan-Lau, J.A.: Balance sheet network analysis of too-connected-to-fail risk in global and domestic banking systems. IMF WP107, 1–25 (2010)
Gai, P., Kapadia, S.: Contagion in financial networks. Proc. Roy. Soc. A Math. Phys. Eng. Sci. 466, 2401–2423 (2010)
Inaoka, H., Takayasu, H., Shimizu, T. Ninomiya, T., Taniguchi, K.: Self-similarity of banking network. Phys. A 339, 621–634 (2004)
Iori, G., Masi, G.D., Precup, O.V., Gabbi, G., Caldarelli, G.: A network analysis of the Italian overnight money market. J. Econ. Dynam. Contr. 32, 259–278 (2008)
Leitner, Y.: Financial networks: contagion, commitment and private sector bailouts. J. Finance. 60, 925–953 (2005)
Minoiu, C., Reyes, J.A.: A networks analysis of global banking: 1978–2009. IMF WP74, 11–41 (2011)
Papadimitriou, T., Gogas, P., Tabak, B.M.: Complex networks and banking systems supervision. Phys. A Stat. Mech. Appl. 392, 4429–4434 (2013)
Schleich, J., Thi, H., Bouvry, P.: Solving the minimum M-dominating set problem by a continuous optimization approach based on DC programming and DCA. J. Comb. Optim. 24, 397–412 (2011)
Steen, M.: Graph Theory and Complex Networks: An Introduction, vol. 9081540610, 1–300 (2010)
Tabak, B.M., Takami, M., Rocha, J.M.C., Cajuero, D.O.: Directed clustering coefficient as a measure of systemic risk in complex networks. Working paper of Banco Central do Brazil, vol. 249, 3–17 (2011)
Thurner, S., Hanel, R., Pichler, S.: Risk trading, network topology and banking regulation. Quant. Finance. 3, 306–319 (2010)
Vives, X.: Central Banks and Supervision. Challenges for Modern Central Banking, pp. 95–113. Klumer Academic, Boston (2001)
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2014 Springer International Publishing Switzerland
About this chapter
Cite this chapter
Gogas, P., Papadimitriou, T., Matthaiou, MA. (2014). A Novel Banking Supervision Method Using the Minimum Dominating Set. In: Kalyagin, V., Pardalos, P., Rassias, T. (eds) Network Models in Economics and Finance. Springer Optimization and Its Applications, vol 100. Springer, Cham. https://doi.org/10.1007/978-3-319-09683-4_14
Download citation
DOI: https://doi.org/10.1007/978-3-319-09683-4_14
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-319-09682-7
Online ISBN: 978-3-319-09683-4
eBook Packages: Mathematics and StatisticsMathematics and Statistics (R0)