Journal article
Risk contagion in the banking network: New evidence from China
The North American Journal of Economics and Finance, Vol.54, pp.1-16
2020
Abstract
Based on data from 111 Chinese banks over the 2013–2016 period, this paper estimates the interbank bilateral lending matrix using the maximum entropy method. The estimated matrix is used to simulate the effects of credit and liquidity shocks on China’s banking network. Simulation results show that, under the extreme pressure scenario, the contagion arising from a liquidity shock is significantly stronger than the effect of a credit shock, indicating the importance of liquidity in the banking system. The contagion effect arising from a credit shock does not vary much over the sample period. However, the contagion effect arising from a liquidity shock decreases significantly, which could be attributed to contraction in interbank business due to stricter interbank business supervision. The simulation results also identify the most important and most vulnerable nodes of the banking system. An increase in the level of capital level can enhance the ability of banks to withstand credit and liquidity shocks. Our analysis also suggests that risk contagion faced by China’s banks varies across banking network structures.
Details
- Title
- Risk contagion in the banking network: New evidence from China
- Authors
- Bing Chen (Author) - Shanghai Lixin University of Accounting and FinanceLi Li (Author) - Shanghai University of International Business and EconomicsFei Peng (Author) - Shanghai Lixin University of Accounting and FinanceSajid Anwar (Author) - University of the Sunshine Coast, Queensland, USC Business School - Legacy
- Publication details
- The North American Journal of Economics and Finance, Vol.54, pp.1-16
- Publisher
- Elsevier BV
- DOI
- 10.1016/j.najef.2020.101276
- ISSN
- 1879-0860
- Organisation Unit
- Indigenous and Transcultural Research Centre; School of Business and Creative Industries; USC Business School - Legacy; University of the Sunshine Coast, Queensland
- Language
- English
- Record Identifier
- 99483607002621
- Output Type
- Journal article
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