Financial systems of different countries have become more interconnected in recent years. This financial integration allows for a better diversification of risks. However, it is also a source of systemic risk, as cross-country interlinkages can easily transmit shocks from one banking system in one country to another banking system in another country. Thus, internationally connected banking systems entail a higher risk of spreading local shocks to a supranational or even worldwide level. The recent financial crisis has revealed how the complexity interlinkages in banking can contribute to the transmission of shocks. As the stability of one bank is determined by its interlinkages to other banks, it cannot be assessed in isolation. Thus, in order to measure systemic stability, one has to take into account the whole network structure. The network research focuses on the transmission of shocks through network linkages and the effect of the network structure on the stability of the financial system.
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