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ABSTRACT
An overview of the relationship between financial networks and sytemic risk is provided with a taxonomy of different types of systemic risk, differentiating between direct externalities between financial organisations ( e.g defaults, correlated portfolios) and perceptions and feedbacks effects ( e.g bank runs ,credit freezer ) .Optimal regulations and bailouts measurements of systemic risk and financial centrality were put also into consideration . Banks face different but potentially correlated risks from outside the financial system. Financial connections can share these risks, but they also create the means by which shocks can be propagated. This tradeoff is examined in the context of stylized fact. American banks were presented because they are more likely to have financial connections when they face more similar risks. A probability of defaults model was developed to rationalize such behaviour . Facts are been laid thatsuch patterns are socially suboptimal and raise systemic risks ,but can be explained by risk shifting. Risk shifting motivates banks to correlate their failure with their counterparties ,even though it creates systemic risk.
