Complexity Science Hub

𝗪𝗵𝗲𝗻 𝘀𝘂𝗽𝗽𝗹𝘆 𝗰𝗵𝗮𝗶𝗻𝘀 𝘀𝗲𝗶𝘇𝗲 𝘂𝗽, 𝘁𝗵𝗲 𝗱𝗮𝗺𝗮𝗴𝗲 𝗿𝗮𝗿𝗲𝗹𝘆 𝘀𝘁𝗼𝗽𝘀 𝗮𝘁 𝗳𝗮𝗰𝘁𝗼𝗿𝘆 𝗴𝗮𝘁𝗲𝘀. 𝗜𝘁 𝗿𝗶𝗽𝗽𝗹𝗲𝘀 𝗶𝗻𝘁𝗼 𝘁𝗵𝗲 𝗯𝗮𝗻𝗸𝗶𝗻𝗴 𝘀𝗲𝗰𝘁𝗼𝗿 𝘁𝗼𝗼 — when companies can't repay their loans, banks feel the strain. But assessments of systemic financial risk have largely overlooked another factor: banks' mutual credit dependencies on the interbank market.

CSH's Jan Fialkowski, Andras Borsos, Christian Diem and Stefan Thurner have developed a new model combining the effects of cascading failures in and the .

💡 𝗧𝗵𝗲 𝗯𝗮𝗰𝗸𝗴𝗿𝗼𝘂𝗻𝗱: 𝗜𝗻𝘁𝗲𝗿𝗮𝗰𝘁𝗶𝗼𝗻 𝗼𝗳 𝘁𝘄𝗼 𝗰𝗵𝗮𝗶𝗻 𝗿𝗲𝗮𝗰𝘁𝗶𝗼𝗻𝘀

1️⃣ Banks are bound together through networks of mutual credit exposure: when one institution suffers losses severe enough to prevent it from repaying its obligations, the lending bank incurs losses in turn. This chain reaction is called interbank contagion, and it can destabilize large parts of the financial sector, as exemplified by the 2007-08 financial crisis.

2️⃣ In the real economy, firms are linked through supply relationships. When one or more links in those chains break — through shortages, production failures or insolvencies — economic damage can propagate through the supply network like a shockwave. Such a scenario is now a live possibility given the blockade of the Strait of Hormuz.

𝗧𝗵𝗲 𝗿𝗲𝘀𝘂𝗹𝘁𝘀:
🦠 Simulations across 1,001 scenarios modelled on the Covid-19 shock show that supply chain contagion amplifies interbank contagion by 70%.
💸 The systemic financial risk posed by individual firms is amplified by 12–28% through interbank contagion.
📈 Extreme loss scenarios become substantially more likely in the presence of supply chain contagion.

🎯 𝗧𝗵𝗲 𝗶𝗺𝗽𝗮𝗰𝘁:
The model gives regulators and banks a stronger basis for assessing systemic financial risk and designing targeted intervention measures in response to pandemics, trade wars, or naval blockades.

🔗 Read the full story here: https://csh.ac.at/project/effects-of-supply-chain-shock-propagation-on-financial-stability/

– If you are eager to advance complex systems research and its applications in network medicine and health data science – and if you share a commitment to improving society and our planet through science – this is your chance.

👉 Find more information and apply here: https://csh.jobs.personio.com/job/2463342

Learn more about research at the Complexity Science Hub in the field of 𝐇𝐞𝐚𝐥𝐭𝐡𝐜𝐚𝐫𝐞 & 𝐌𝐞𝐝𝐢𝐜𝐢𝐧𝐞 and meet the researchers behind it: https://csh.ac.at/research/research-topic/healthcare-medicine/

𝗛𝗼𝘄 𝗰𝗮𝗻 𝗼𝗻𝗲 𝗘𝘂𝗿𝗼𝗽𝗲𝗮𝗻 𝗰𝗮𝗽𝗶𝘁𝗮𝗹 𝗯𝗲 𝗿𝗲𝘀𝗽𝗼𝗻𝘀𝗶𝗯𝗹𝗲 𝗳𝗼𝗿 𝗺𝗼𝘀𝘁 𝗼𝗳 𝘁𝗵𝗲 𝗪𝗲𝘀𝘁’𝘀 𝗶𝗻𝘁𝗲𝗹𝗹𝗲𝗰𝘁𝘂𝗮𝗹 𝗮𝗻𝗱 𝗰𝘂𝗹𝘁𝘂𝗿𝗮𝗹 𝗮𝗰𝗵𝗶𝗲𝘃𝗲𝗺𝗲𝗻𝘁𝘀 𝗶𝗻 𝘁𝗵𝗲 𝘁𝘄𝗲𝗻𝘁𝗶𝗲𝘁𝗵 𝗰𝗲𝗻𝘁𝘂𝗿𝘆?

Last week, we had the pleasure of welcoming Richard Cockett — journalist, historian, and The Economist editor — to the Complexity Science Hub for a talk on his book "Vienna: How the City of Ideas Created the Modern World."

From nuclear fission to or***ms, from modern advertising to the fitted kitchen — an astonishing share of the intellectual DNA of the modern West is in some way shaped by Vienna. Freud, Wittgenstein, Mahler, Klimt, Hedy Lamarr, Schnitzler — the list goes on.

But what made Vienna such a crucible of ideas? Cockett pointed, for instance, to the culture of exchange: scientists and thinkers met across disciplines, in salons and in a university where all faculties sat under one roof. Knowledge wasn't siloed.

When fascism rose, the vibrant circles of thinkers who called Vienna home dispersed across the world – and their impact followed them. The West benefited enormously from those émigrés. As Cockett put it: if today's debates are about banning migration, think carefully.

The discussion afterwards was hard to stop. Thank you, Richard — it was a genuine pleasure to have you at CSH. And thanks to Eddie Lee for making it possible.