Sanjiv Das, Kris Mitchener, Angela Vossmeyer, 11 March 2019

The Global Crisis brought attention to how connections among financial institutions may make systems more prone to crises. Turning to a major financial crisis from the past, this column uses data from the Great Depression to study risk in the commercial banking network leading up to the crisis and how the network structure influenced the outcomes. It demonstrates that when the distribution of risk is more concentrated at the top of the system, as it was in 1929, fragility and the propensity for risk to spread increases.

Antonio Cabrales, 07 June 2018

The Great Moderation was characterised by a period of risk-pooling. Antonio Cabrales discusses his research on the socially optimal design of financial networks for tackling the trade-off between risk sharing and contagion. When firms face heterogeneous distributions of risks, they should optimally form linkages only with firms facing risks of the same kind.

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