Systematic analysis of banking sector vulnerability to macroeconomic shocks and policy changes

Posted: Oct 28, 2025

• Dr. Prof. Isabella Costa
• Dr. Prof. Jack Adams
• Dr. Prof. Jack Silva

Abstract

The global banking sector operates within an increasingly complex and inter-connected financial ecosystem, where macroeconomic shocks and policy changes can propagate through networks of financial institutions with potentially systemic consequences. Traditional approaches to banking vulnerability assessment have primarily relied on linear econometric models, stress testing frameworks, and early warning systems that often fail to capture the non-linear dynamics and complex interdependencies characteristic of modern financial systems. These conventional methodologies typically treat banks as isolated entities rather than interconnected nodes within a dynamic network, thereby overlooking critical vulnerability transmission channels that emerge during periods of financial stress. This research addresses these limitations by introducing a novel computational framework that integrates network theory, quantum-inspired modeling, and advanced machine learning techniques to provide a more comprehensive assessment of banking sector vulnerability. Our approach represents a significant departure from traditional financial stability analysis by incorporating both conventional financial metrics and unconventional indicators that capture the multi-dimensional nature of banking system resilience. The framework explicitly models the complex web of interbank exposures, derivative contracts, and cross-border linkages that can amplify shocks and facilitate their propagation throughout the financial system.