In financial ecosystems, big banks trample economic habitats and spread fiscal disease

by Morgan Kelly, Office of Communications

Like the impact of an elephant herd grazing on grassland, multinational banks shape the financial environment to an extent that far outweighs their small number. And like a contagious person on a transnational flight, when these giant, interconnected banks succumb to financial ills, they are uniquely positioned to infect wide swaths of the financial system.

Researchers from Princeton University, the Bank of England and the University of Oxford applied methods inspired by ecosystem stability and contagion models to banking meltdowns and found that large national and international banks wield an influence and potentially destructive power that far exceeds their actual size.