Work

Extending Maximum-Entropy Interbank Reconstruction to a Multi-Country Framework with Cross-Border Exposures

Year: 2026

Type: article

Abstract: Estimating bilateral interbank exposures is essential for assessing systemic risk and contagion in global banking systems. We propose a reconstruction framework that extends the maximum-entropy approach to a multi-country setting by integrating domestic balance-sheet total interbank exposure values with country-level aggregate cross-border exposures. The method distributes each country’s external positions across its resident banks and then reconstructs the domestic interbank matrices under maximum-entropy constraints, yielding a globally consistent exposure matrix. Cross-border aggregates—such as those published by the BIS—enter the framework only as optional external constraints rather than as objects of empirical validation. The resulting dual-layer interbank network improves the internal coherence of multi-country exposure estimates and provides a consistent input for contagion simulations and systemic risk analysis.

Source: Journal of risk and financial management

DOI: 10.3390/jrfm19020140

Authors: Simone Sbaraglia, Pin Guo, Stefano Zedda

Institutions: University of Cagliari, Xi'an Jiaotong University

Language: English

Topic: Banking stability, regulation, efficiency

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $1,689

Funder: European Commission