An introduction to financial networks

Kimmo Soramäki and Samantha Cook

Networks are all around us. Complex interactions between entities play a profound role in society and the natural world, from the World Wide Web and molecular processes to food webs and economic networks. In 2020, we became grievously familiar with viral infection networks as the Covid-19 pandemic created global health and economic crises concurrently. The growth in interdependencies and connectivity of our supply chain networks over recent decades also came into focus in 2020–21 as shortages of energy, labour and computing chips, as well as spikes in shipping costs, impacted global economic stability. These events provide a stark reminder of the importance of understanding how networks function as complex adaptive systems. Only then are we able to protect these systems from inflicting damage on our health or economic prosperity.

Few networks optimise the need for a greater understanding than financial networks. Financial networks are everywhere. We are part of them when we make payments, borrow money or invest in financial markets. The actions that we take affect not only our own risks and rewards, but also those of our direct counterparts and everyone who is part of the same