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Volume 2017, Article ID 9895632, 16 pages
Research Article

Partially Overlapping Ownership and Contagion in Financial Networks

1School of Business and Economics, Indiana University Northwest, 3400 Broadway, Gary, IN 46408, USA
2Department of Mathematics and Actuarial Science, Indiana University Northwest, 3400 Broadway, Gary, IN 46408, USA

Correspondence should be addressed to Micah Pollak; ude.nui@kallopm

Received 27 July 2017; Accepted 8 October 2017; Published 6 November 2017

Academic Editor: Ahmet Sensoy

Copyright © 2017 Micah Pollak and Yuanying Guan. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.


Using historical banking data for the United States from the years 2000 to 2015 we characterize the probability and extent of a financial contagion using a calibrated network model of heterogeneous interbank exposures. Both the probability and the average extent of a contagion begin to rise in 2007 prior to the US financial crisis. Including a common asset in the model increases both the probability and extent of contagion, especially during the years of the financial crisis. Based on rising institutional ownership in the banking industry, we introduce a partially overlapping ownership asset that devalues endogenously. The addition of this asset increases the extent of a financial contagion. Our results show that trends in capital buffers and the distribution and type of assets have a significant effect on the predictions of financial network contagion models and that the rising trend in ownership of banks by banks amplifies shocks to the financial system.