It is often argued that the interconnectedness of the global financial system, which increased significantly prior to the global financial crisis, was a key driver of its severity.

As William Dudley, President of the Federal Reserve Bank of New York, remarked, the failure of financial firms has negative externalities for the financial system, and these externalities become “disproportionately high in the case of large, complex, and interconnected firms” (Dudley, 2012). Ben Bernanke, Chairman of the Board of Governors of the Federal Reserve System, argued that interconnectedness was one of several vulnerabilities that “has the potential to magnify shocks to the financial system” (Bernanke, 2013). In recent years, both academia and policy institutions have called for more research on the linkages that transmit distress from one financial firm to another and ultimately impact the broader financial system. Gertrude Tumpel-Gugerell, a Member of the Executive Board of the European Central Bank, argued that such research would ideally include the interactions of interbank exposures with the real economy (Tumpel-Gugerell, 2009).