In this Nature Physics Focus, for the first time, network scientists, economists and regulators team-up to discuss for a wider audience the fundamental challenges posed by complex financial networks to the stability of our economies. Four interconnected papers about: why financial networks can get so complex and unstable; some new network approaches currently pursued by regulators; some research avenues to be explored in the future.
Understanding something of the complexity of a financial network is one thing, influencing the behaviour of that system is another. But new tools from network science define a notion of 'controllability' that, coupled with 'centrality', could prove useful to economists and financial regulators.
The present economic downturn has revealed an unexpected com- plexity of financial markets and brought to the fore new questions both to scientists and regulators. Institutions of heterogeneous size get connected in complex networks of financial ties which play a major role for the spread of contagion. The current debate in reg- ulation focuses on how to identify systemically important financial institutions, as well as on how many and which institutions should be monitored by central banks.