Evolving interdependencies across institutions and markets drive systemic financial risk, yet most forecasting models either treat assets independently or rely on static correlation structures. This limitation becomes particularly salient as cryptocurrency markets increasingly interact with traditional banking systems amid financial stress. Ignoring time-varying cross-market network structure risks understating tail risk precisely during periods when accurate systemic risk assessment is most critical. This study proposes a dynamic graph neural network (GNN) framework for systemic risk forecasting that models time-varying financial networks spanning banking institutions and major cryptocurrency assets. Nodes represent financial entities, while edges are constructed using rolling-window dependency measures that adapt to changing market conditions. Node dynamics are modeled through temporal neural architectures, and stress regimes are explicitly identified to evaluate performance under market turmoil. The empirical design includes strong temporal baselines, static-graph ablations, and cross-market removal experiments to isolate the contribution of network dynamics and crypto-market integration. Results indicate that a strong LSTM baseline achieves superior volatility forecasting accuracy in both overall and stress-period evaluations, demonstrating the competitiveness of purely temporal models. However, within the class of graph-based models, dynamic GNNs substantially outperform static-graph variants during stress periods, demonstrating the importance of time-varying network structure for capturing volatility amplification. Bank-only and full-system dynamic GNNs exhibit comparable stress-period performance, suggesting that cryptocurrency assets contribute limited incremental information to bank-specific forecasts, while remaining informative for system-level stress characterization. The findings suggest that dynamic graph representations enhance stress sensitivity and structural interpretability relative to static network models, even when they do not surpass strong temporal baselines in raw predictive accuracy. The results support a restrained view of crypto–banking contagion, emphasizing its conditional relevance during periods of market stress rather than unconditional systemic dominance.
Islam et al. (Tue,) studied this question.
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