Financial stability through the lens of complex systems

• Published in: Journal of financial stability Vol. 71; p. 101228
• Main Authors: Hałaj, Grzegorz, Martinez-Jaramillo, Serafin, Battiston, Stefano
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.04.2024
• Subjects: Complex system; Financial stability; Systemic risk; Financial stability; Complex system; Systemic risk
• ISSN: 1572-3089; 1878-0962
• DOI: 10.1016/j.jfs.2024.101228

In this cover paper, we introduce a Special Issue (SI) published after the fourth edition of a series of financial stability conferences organized by Bank of Mexico, CEMLA, Bank of Canada, Zurich University and the Journal of Financial Stability in November 2021. Before providing our perspective on why the research papers included into the SI are of great relevance, we give a brief and personal overview of recent directions in financial stability research in general, esp., related to topics accentuated by the COVID-19 pandemic or post-pandemic economic and financial conditions and their complexity. Papers published in the SI cover four topics of research in the financial stability field, featuring some outstanding and innovative projects presented during the conference. The first topic is on interconnectedness and shock transmission in the financial system, diving deep into asset fire sales, interconnectedness of various segments of the financial system, in addition to banks, on the optimality of systemic risk capital buffers, and on how risks are priced in the interbank market network. The second one touches upon climate change risks looking at investors’ reactions to international climate policy developments, in particular on the Paris Agreement front and how to jointly model physical and transition risk in the banking system, including the important concept of double materiality. The third topic is represented by projects focused on policy analysis for systemic risk mitigation, specifically dealing with macroprudential policy instruments and crisis mitigation policies. Finally, research papers in the last topic on big data and market data focus on the innovative ways to explore the growing body of data sources, such as data collected by regulators, including credit register data, supervisory data and market data on financial transactions, to better understand sources and implications of systemic risk.