DebtRank Analysis of the Japanese Credit Network

Author Name AOYAMA Hideaki  (Faculty Fellow, RIETI) /Stefano BATTISTON  (ETH, Zurich) /FUJIWARA Yoshi  (University of Hyogo)
Creation Date/NO. October 2013 13-E-087
Research Project Dynamics, Energy and Environment, and Growth of Small- and Medium-sized Enterprises
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We present an analysis of the lending/borrowing relationship between Japanese banks and Japanese firms, which form a bipartite credit network. We introduce distress to some initial node(s) (banks or firms) and allow it to propagate and contaminate other nodes in this network according to the relative exposure. First, by choosing the initial node to be a bank and taking the weighted average of the resulting distress distribution, with the weight proportional to the size (total assets) of each node, we identify the bank's importance to the whole network at the time of crisis. This leads to a nonlinear relationship between the importance and the size of the bank, which implies that mergers with the same-sized partner would result the most in the increase in importance. Second, by introducing the initial distress to firms in certain industrial sector(s), we evaluate the vulnerability of banks and firms in other sectors due to the distress in the initial sectors.