Identifying Systemically Important Banks: A Transfer Entropy Approach
Identifying Systemically Important Banks: A Transfer Entropy Approach

Summary/Abstract: In recent years, the banking sector has been exposed to several negative shocks,leading to higher interconnectedness and increased systemic risk. The aim of this study is toexamine the structure of the global banking sector and identify systemically important bankinginstitutions in the context of risk transmission. Using daily stock price data from 77 globalbanks from November 2015 to December 2025, we apply the transfer entropy method toconstruct a TE-weighted network. The results confirm a high degree of interconnectednesswithin the banking sector. Banks such as BoCom, Goldman Sachs, Industrial Bank, KBFinancial Group, and HDFC Bank are identified as the most systemically important banks.These banks primarily act as receivers of risk, which they may subsequently transmit to otherparts of the system. In contrast, banks such as Deutsche Bank, PNC, and Hua Xia Bankrepresent key sources of risk transmission within the banking sector.

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