  The theory of multilayer networks is in its early stages, and its development
provides vital methods for understanding complex systems. Multilayer networks,
in their multiplex form, have been introduced within the last three years to
analysing the structure of financial systems, and existing studies have
modelled and evaluated interdependencies of different type among financial
institutions. These studies, however, have considered the structure as a
non-interconnected multiplex - an ensemble of single layer networks comprising
the same nodes - rather than as an interconnected multiplex network. No
mechanism of multichannel contagion has been modelled and empirically
evaluated, and no multichannel stabilisation strategies for pre-emptive
contagion containment have been designed. This paper formulates an
interconnected multiplex structure, and a contagion mechanism among financial
institutions due to bilateral exposures arising from institutions activity
within different interconnected markets that compose the overall financial
market. We introduce structural measures of absolute systemic risk and
resilience, and relative systemic-risk indexes. Based on the contagion
mechanism and systemic-risk quantification, this study designs minimum-cost
stabilisation strategies that act simultaneously on different markets and their
interconnections, in order to effectively contain potential contagion
progressing through the overall structure. The stabilisation strategies subtly
affect the emergence process of structure to adaptively build in structural
resilience and achieve pre-emptive stabilisation at a minimum cost for each
institution and at no cost for the system as a whole. We empirically evaluate
the new approach using large granular databases, maintained by the Prudential
Regulatory Authority of the Bank of England. The capabilities of multichannel
stabilisation are confirmed empirically.
