  Banks in the interbank network can not assess the true risks associated with
lending to other banks in the network, unless they have full information on the
riskiness of all the other banks. These risks can be estimated by using network
metrics (for example DebtRank) of the interbank liability network which is
available to Central Banks. With a simple agent based model we show that by
increasing transparency by making the DebtRank of individual nodes (banks)
visible to all nodes, and by imposing a simple incentive scheme, that reduces
interbank borrowing from systemically risky nodes, the systemic risk in the
financial network can be drastically reduced. This incentive scheme is an
effective regulation mechanism, that does not reduce the efficiency of the
financial network, but fosters a more homogeneous distribution of risk within
the system in a self-organized critical way. We show that the reduction of
systemic risk is to a large extent due to the massive reduction of cascading
failures in the transparent system. An implementation of this minimal
regulation scheme in real financial networks should be feasible from a
technical point of view.
