Financial Networks and Systemic Risk in China’s Banking System

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper, using two alternative methods, we investigate the contagion effects and systemic risk in China’s commercial banks system based on the balance sheet data and the estimation on interbank exposures. First, we calculate various indicators in terms of the balance sheets of individual commercial banks to quantify contagiousness and vulnerability for China’s banking system without considering the detailed topology of interbank networks. Second, we estimate the detailed bilateral exposures matrix of the interbank network to examine the domino effects and snowball effects of financial contagion. The simulation results from two alternative approaches are consistent. Both suggest that the contagious risk arising from an assumed bank failure is trivial in Chinese banking system, whereas the amplification effects of the losses due to the financial interlinkage are non-trivial. In particular, we identify the systemic important banks in terms of a relative contagion index and the measures capturing the topological features of the interbank networks, respectively. Our study provides insights for the prevention of systemic risk and the implementation of macroprudential oversights in China’s banking system.

Keywords: Balance Sheets; Interbank Networks; Financial Contagion; Systemic Risk; China’s Banking System (search for similar items in EconPapers)
JEL-codes: D85 G21 G28 (search for similar items in EconPapers)
Date: 2018-01-06, Revised 2018-05-18
New Economics Papers: this item is included in nep-ban, nep-cna and nep-rmg
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Citations: View citations in EconPapers (1)

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Journal Article: Financial networks and systemic risk in China's banking system (2020)
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