Optimal network compression

This paper introduces a formulation of the optimal network compression problem for financial systems. general is presented different levels or rerouting allowed from initial interbank network. We prove that this is, generically, NP-hard. focus on objective functions generated by systemic risk measures under shocks to use framework study (sub)optimality maximally compressed conclude studying specific networks; permits us study, e.g., so-called robust fragility certain topologies more generally as well potential benefits and costs compression. In particular, systematic heterogeneous networks results Acemoglu, Ozdaglar, Tahbaz-Salehi (2015) no longer hold generally.