Extending Maximum-Entropy Interbank Reconstruction to a Multi-Country Framework with Cross-Border Exposures

Estimating bilateral interbank exposures is essential for assessing systemic risk and contagion in global banking systems. We propose a reconstruction framework that extends the maximum-entropy approach to a multi-country setting by integrating domestic balance-sheet total interbank exposure values with country-level aggregate cross-border exposures. The method distributes each country’s external positions across its resident banks and then reconstructs the domestic interbank matrices under maximum-entropy constraints, yielding a globally consistent exposure matrix. Cross-border aggregates—such as those published by the BIS—enter the framework only as optional external constraints rather than as objects of empirical validation. The resulting dual-layer interbank network improves the internal coherence of multi-country exposure estimates and provides a consistent input for contagion simulations and systemic risk analysis.

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Publication Details

Journal
Journal of risk and financial management
Published
2026-02-13
DOI
https://doi.org/10.3390/jrfm19020140
Primary Topic
Banking stability, regulation, efficiency
Type
article
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article

Extending Maximum-Entropy Interbank Reconstruction to a Multi-Country Framework with Cross-Border Exposures

Guo Pin, Simone Sbaraglia, Stefano Zedda
Journal of risk and financial management
Banking stability, regulation, efficiency
article

Extending Maximum-Entropy Interbank Reconstruction to a Multi-Country Framework with Cross-Border Exposures

Guo Pin, Simone Sbaraglia, Stefano Zedda
article en

Abstract

Estimating bilateral interbank exposures is essential for assessing systemic risk and contagion in global banking systems. We propose a reconstruction framework that extends the maximum-entropy approach to a multi-country setting by integrating domestic balance-sheet total interbank exposure values with country-level aggregate cross-border exposures. The method distributes each country’s external positions across its resident banks and then reconstructs the domestic interbank matrices under maximum-entropy constraints, yielding a globally consistent exposure matrix. Cross-border aggregates—such as those published by the BIS—enter the framework only as optional external constraints rather than as objects of empirical validation. The resulting dual-layer interbank network improves the internal coherence of multi-country exposure estimates and provides a consistent input for contagion simulations and systemic risk analysis.

Journal of risk and financial managementVol. 19(2)
University of Cagliari (IT), Xi'an Jiaotong University (CN)
Openalex Percentile: Top 58%
Banking stability, regulation, efficiency
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Extending Maximum-Entropy Interbank Reconstruction to a Multi-Country Framework with Cross-Border Exposures — Guo Pin, Simone Sbaraglia, et al. · Journal of risk and financial management (2026) | TGRS Research Map | TGRS