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Chapter 21: Networks In Finance

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Executive Summary

Modern financial systems exhibit a high degree of interdependence, with connections between financial institutions stemming from both the asset and the liability sides of their balance sheets. For instance, banks are directly connected through mutual exposures acquired on the interbank market. Likewise, banks are indirectly linked through holding similar portfolios or sharing the same mass of depositors. Networks - broadly understood as a collection of nodes and links between nodes - can be a useful representation of financial systems. By modeling economic interactions, network analysis can better explain certain economic phenomena.

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