Mitigating financial cascades in scale-free networks

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Mitigating financial cascades in scale-free networks
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Mitigating distress cascades in financial networks
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We use a simple model of distress propagation (the sandpile model) to shows how financial systems are naturally subject to the risk of systemic failures. Taking into account possible network structures among financial institutions, we investigate if simple policies can limit financial distress propagation to avoid system-wide crises, i.e. to dampen systemic risk. We therefore compare different immunization policies (targeted helps to financial institutions) and find that the information coming from the network topology allows to mitigate systemic cascades by targeting just few institutions. Furthermore, our analysis points that ”Rich Clubs” can significatively enhance the effects of targeted policies for securing the financial network. This result represents a higly controversial point from the perspective of policy makers trying to enforce a free market and to avoid oligopolies.