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Systemic risk in banking ecosystems

Nature 469, 351–355 (20 January 2011) | Download Citation

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Abstract

In the run-up to the recent financial crisis, an increasingly elaborate set of financial instruments emerged, intended to optimize returns to individual institutions with seemingly minimal risk. Essentially no attention was given to their possible effects on the stability of the system as a whole. Drawing analogies with the dynamics of ecological food webs and with networks within which infectious diseases spread, we explore the interplay between complexity and stability in deliberately simplified models of financial networks. We suggest some policy lessons that can be drawn from such models, with the explicit aim of minimizing systemic risk.

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Acknowledgements

We are indebted to colleagues (particularly S. Kapadia, N. Arinaminpathy and G. Sugihara), who made many helpful comments and constructive criticisms.

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Affiliations

  1. Bank of England, Threadneedle Street, London EC2R 8AH, UK

    • Andrew G. Haldane

  2. Zoology Department, Oxford University, Oxford OX1 3PS, UK

    • Robert M. May

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Competing interests

The authors declare no competing financial interests.

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Correspondence to Robert M. May.

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https://doi.org/10.1038/nature09659

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