By Zijun Liu of the Capital Markets Division, Stephanie Quiet previously of the Banking and Insurance Analysis Division and Benedict Roth of the International Banks Directorate.
Banks can be connected to each other in a number of ways. Greater interconnectedness means that stresses tend to spread more rapidly and extensively across the financial system. Various regulatory initiatives have been introduced to mitigate financial stability risks arising from interconnectedness. On some measures, such as interbank credit exposures, interconnectedness has decreased materially since the financial crisis.