Topological Properties of Reconstructed Credit Networks and Banking Systemic Risk

Financial networks provide channels for contagion risks and their topological properties determine financial stability. We extend financial network reconstruction methods to the bipartite network and then compare their reproducibility for the real credit network in terms of different topological properties. Accordingly, the impact of topological properties for different reconstructed bipartite networks on systemic risk is analyzed based on fire sales spillovers. The empirical results highlight the main topological properties of bipartite networks that contribute to different systemic risks. The analysis for topological properties provides regulatory insights for systemic risk prevention. It shows that reducing credit similarity across banks while increasing credit diversification in different sectors helps to control systemic risk. The results imply the possibility of increasing financial stability through the macro-regulation of the credit market structure