Assessing the risk of default propagation in interconnected sectorial financial networks

Systemic risk of financial institutions and sectorial companies relies on their inter-dependencies. The inter-connectivity of the financial networks has proven to be crucial to understand the propagation of default, as it plays a central role to assess the impact of single default events in the full system. Here, we take advantage of complex network theory to shed light on the mechanisms behind default propagation. Using real data from the financial company BBVA, we extract the network of client-supplier transactions between more than 140,000 companies, and their economic flows. In this talk , we introduce a basic computational model, inspired by the probabilities of default contagion, that allow us to obtain the main statistics of default diffusion given the network structure at individual and system levels. Achieved results show the exposure of different sectors to the default cascades, therefore allowing for a quantification and ranking of sectors accordingly. As we will show, this information is relevant to propose countermeasures to default propagation in specific scenarios.