We simulate shocks to the real sector and evaluate how the financial system reacts and amplifies these events using unique Brazilian loan-level data between banks and banks and firms. Our analysis considers the feedback behavior that exists between the financial and real sectors through a micro-level financial accelerator. We find a strong “network effect” in which the network structure can either attenuate or amplify shocks from the real sector and thus plays a major role in contagion processes. We also find that government-owned banks are the most susceptible banks to receiving shocks from firms of any economic sector. There is empirical evidence to support the claim that more diversified portfolios of banks contribute to higher sector riskiness levels. Our results suggest that systemic risk models should account for the interconnectedness among economic agents—such as the interbank and real and financial sector linkages—in a multilayer approach. Overall, we show that the feedback between the real and financial sector matters in systemic risk estimation and most models that do not take into consideration could be severely underestimating systemic risk.

Networks with a core–periphery topology are found in many financial systems across different jurisdictions. Though the theoretical and structural aspects of core–periphery networks are clear, the consequences that core–periphery structures bring for banking efficiency stand as an open question. We address this gap in the literature by providing insights as to how the structure of financial networks can affect bank efficiency. We find that core–periphery structures are cost efficient for banks, which is a characteristic that encourages the participation of banks in financial networks. On the downside, we also show that core–periphery structures are risk-taking inefficient, because they imply higher systemic risk levels in the financial system. In this way, regulators should be aware of the excessive risk inefficiency that arises in the financial system due to individual decisions made by banks in the network.