  Following the financial crisis of 2007-2008, a deep analogy between the
origins of instability in financial systems and complex ecosystems has been
pointed out: in both cases, topological features of network structures
influence how easily distress can spread within the system. However, in
financial network models, the details of how financial institutions interact
typically play a decisive role, and a general understanding of precisely how
network topology creates instability remains lacking. Here we show how
processes that are widely believed to stabilise the financial system, i.e.
market integration and diversification, can actually drive it towards
instability, as they contribute to create cyclical structures which tend to
amplify financial distress, thereby undermining systemic stability and making
large crises more likely. This result holds irrespective of the details of how
institutions interact, showing that policy-relevant analysis of the factors
affecting financial stability can be carried out while abstracting away from
such details.
