The financial crisis marked a paradigm shift, from traditional studies of individual risk to recent research on the "systemicrisk" generated by whole networks of institutions. However, the reverse effects of realized defaults on network topology are poorly understood. Here we analyze the Dutch interbank network over the period 1998-2008, ending with the global crisis. We find that many topological properties, after controlling for overall densityeffects, display an abrupt change in 2008, thus providing a clear but unpredictable signature of the crisis. By contrast, if the intrinsic heterogeneity of banks  is controlled for, the same properties undergo a slow and continuous transition , gradually connecting the crisisperiod to a much earlier stationary phase. This early-warning signal begins in 2005 , and is preceded by an even earlier period of "risk autocatalysis" characterized by anomalous debt loops . These remarkable precursors are undetectable if the network is reconstructed from partial bank-specific information .
The financial crisis clearly illustrated the importance of characterizing the level of `systemic' risk associated with an entire credit network, rather than with single institutions. However, the interplay between financial distress and topological changes is still poorly understood. Here we analyze the quarterly interbank exposures among Dutch banks over the period 1998-2008, ending with the crisis. After controlling for the link density, many topological properties display an abrupt change in 2008, providing a clear - but unpredictable - signature of the crisis. By contrast, if the heterogeneity of banks ' connectivity is controlled for, the same properties show a gradual transition to the crisis, starting in 2005 and preceded by an even earlier period during which anomalous debt loops presumably favored the underestimation of counter-party risk. These early-warning signals are undetectable if the network is reconstructed from partial bank-specific data, as routinely done. We discuss important implications for bank regulatory policies .
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