Spatial financeWhere capital meets hazard, exposure and transition
Network science and contagion for financial crime and fraud risk
Network science studies how accounts, people, companies and transactions connect. On this platform it explains how mule networks, layered transactions and ownership chains are detected from links that single-account monitoring misses.
Network science and contagion study how the structure of connections among entities shapes the spread of failures, information and disease. It provides tools to analyse interdependent infrastructure, supply chains and financial systems. In financial stability, cyber and digital resilience and governance and institutions, network science identifies critical nodes and pathways through which shocks propagate across sectors. It informs targeted protection and diversification to limit cascades. The canonical description is on the STEM Commons.
Mule network detection
Graphs of payments between accounts reveal clusters that receive and quickly pass on funds, a pattern typical of mule activity.
Ownership chain analysis
Corporate ownership graphs are traced to find ultimate beneficial owners and links to listed persons through layered entities.
Cross-institution patterns
Within legal gateways, linked data from several institutions show patterns that no single institution can see on its own.
03Monitor
Network analysis.
The screen a team would use to follow this method: its measures, states and decisions. Names are examples and values are illustrative.
Network analysis
Financial crime · Network science and contagion · Run R-1316
Single point of failureGRA · Financial Crime and Fraud Risk
Dependency graph
nodes: assets · edges: dependencies
Most central nodes
N3
0.29
8
Critical
N4
0.34
6
Normal
N5
0.34
7
Normal
N6
0.09
14
Normal
Cascade size under removal
Network analysis: the screen's structure, terms and states for Financial crime.Example names and illustrative values; a design, not a record or a live system.
04Data
What the method consumes.
Datasets and records used by network science and contagion on this platform, with the role each plays and the label its values carry. Sources are listed in the source register.
Data
Role
Label
Payment transaction networks
Flow links
OBSERVED
Corporate registers
Ownership links
Published statistics
Shared intelligence
Cross-institution links
REPORTED
05Stress test
How a shock to assets becomes a system loss.
The equity the system loses after interbank contagion, against the initial hit, as leverage, interconnection and recovery rates change, the core of a macroprudential stress test. Teaching model with stated illustrative values, not a prediction.
Controls
Fall in external assets
2.0%
Leverage (assets over equity)
10 times
Interbank share of assets
10%
Recovery on interbank claims
40%
Banks in the system
20
Core banks
20% of banks
Readouts
Equity lost to the initial shock
18.0%
Equity lost after contagion
45.0%
Added by contagion (DebtRank)
27.0 points
Banks in default
0
Numbers, methods and sources
Round
System equity lost (%)
Banks in default
0
18.00
0
1
28.80
0
2
35.28
0
3
39.17
0
4
41.50
0
5
42.90
0
6
43.74
0
7
44.24
0
8
44.55
0
9
44.73
0
10
44.84
0
11
44.90
0
12
44.94
0
13
44.96
0
14
44.98
0
15
44.99
0
16
44.99
0
17
45.00
0
18
45.00
0
19
45.00
0
20
45.00
0
21
45.00
0
22
45.00
0
23
45.00
0
24
45.00
0
25
45.00
0
26
45.00
0
27
45.00
0
28
45.00
0
29
45.00
0
30
45.00
0
Methods
DebtRank Battiston and others (2012), Scientific Reports 2:541
Differential DebtRank Bardoscia and others (2015), PLOS ONE 10
Contagion in financial networks Gai and Kapadia (2010), Proc. R. Soc. A 466
Clearing in financial networks Eisenberg and Noe (2001), Management Science 47
Uncertainty fan (parameter Monte Carlo) Spiegelhalter, Pearson and Short (2011), Visualising uncertainty about the future, Science 333
One-at-a-time sensitivity (tornado) Saltelli and others (2008), Global Sensitivity Analysis: The Primer, Wiley
Data
No observed data enters this model: it runs on the teaching values set by the controls, to be replaced with a programme's own evidence.
How a shock to assets becomes a system loss. Illustrative teaching model: it runs on the values set by the controls, not on measured data. Methods: DebtRank (Battiston and others (2012), Scientific Reports 2:541); Differential DebtRank (Bardoscia and others (2015), PLOS ONE 10); Contagion in financial networks (Gai and Kapadia (2010), Proc. R. Soc. A 466).
Models are checked by reproducing observed cascades and outbreaks. Robustness of results to missing or uncertain links is tested.
Check
How it is done
Entity resolution
Nodes are de-duplicated and matched before analysis
False link risk
Network findings are reviewed by analysts before action
Legal basis
Data used across institutions has a lawful gateway
Network data are often incomplete or confidential. Static network models may miss adaptive behaviour during cascades.
07Exposure, loss and capital
What it means for exposure, loss and capital.
The exposure, loss, scenario and capital views a risk officer, supervisor or ministry of finance would ask for, with the frameworks they report against. Structures follow supervisory and actuarial practice. Values are illustrative: never prices, ratings or advice.
Transmission channels
How a shock in network science and contagion for financial crime and fraud risk reaches credit, market, underwriting, liquidity and operational risk, and feeds back.
Channel structure after the Basel Committee's work on climate-related risk drivers and transmission channels; links shown are typical paths, not estimated exposures.
NGFS climate scenarios · Network for Greening the Financial SystemIFRS S2 Climate-related Disclosures · ISSBTCFD recommendations · Financial Stability Board TCFDPrinciples for the effective management of climate-related financial risks · Basel Committee on Banking Supervision
What are the limits of network science and contagion in this field?
Network data are often incomplete or confidential. Static network models may miss adaptive behaviour during cascades.
How are results checked?
Models are checked by reproducing observed cascades and outbreaks. Robustness of results to missing or uncertain links is tested.
Are the values on this page real?
The data names, roles and checks are real descriptions of practice. The canvas shows a design of the method's use, not a run; no result is reported here.
Reports is the Consortium's quarterly publication. What you know about this subject can become evidence, a case or a correction in the next edition, credited to you and published under CC BY 4.0 where it is your own work.
Global Risks AllianceFinancial Crime and Fraud RiskEvidence Brief
Never send personal data, sensitive infrastructure detail or anything you have no right to share. A contribution is reviewed before use; sending it confers no authorship or editorial rights, and sponsorship never buys a finding.
Financial Crime and Fraud Risk
Bring an exposure or capital question to the Alliance.
Information and enquiries are open today. An enquiry receives a reference and names the next step; applications, payments, compute allocations and registrations open only when their team, terms and review capacity exist.
Maps, data and figures on this site are shown for context and general information. They are not advice, forecasts or warnings; the limits of the information are set out in the Disclaimers and Data Notices.
Editors and the expert reviewers named on each article decide what we publish. Funders and partners do not review or approve articles before publication.
This site uses only strictly necessary cookies to work and to remember your privacy choices. Nothing loads from other companies, and we never sell or share your personal information.
Details
This site uses only strictly necessary cookies to work and to remember your privacy choices. Nothing loads from other companies, and we never sell or share your personal information. We run no advertising. You can review your choices at any time through Privacy choices at the foot of every page.