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Financial networks and systemic risk in China's banking system

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  • Sun, Lixin

Abstract

The paper investigates the contagion effects and systemic risk in China's commercial banks system based on the balance sheet data. First, we 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 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, whereas the amplification effects of the losses due to the financial interlinkage are non-trivial.

Suggested Citation

  • Sun, Lixin, 2020. "Financial networks and systemic risk in China's banking system," Finance Research Letters, Elsevier, vol. 34(C).
    • Handle: RePEc:eee:finlet:v:34:y:2020:i:c:s154461231930368x
    DOI: 10.1016/j.frl.2019.07.009
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    2. Chen, Bing & Li, Li & Peng, Fei & Anwar, Sajid, 2020. "Risk contagion in the banking network: New evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    3. Xie, Yiwei & Jiao, Feng & Li, Shihan & Liu, Qingfu & Tse, Yiuman, 2022. "Systemic risk in financial institutions: A multiplex network approach," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    4. Shi, Qing & Sun, Xiaoqi & Jiang, Yile, 2022. "Concentrated commonalities and systemic risk in China's banking system: A contagion network approach," International Review of Financial Analysis, Elsevier, vol. 83(C).
    5. Fittje, Jens & Wagner, Helmut, 2020. "Networking topography and default contagion in China’s financial system," CEAMeS Discussion Paper Series 17/2020, University of Hagen, Center for East Asia Macro-economic Studies (CEAMeS).
    6. Nivorozhkin, Eugene & Chondrogiannis, Ilias, 2022. "Shifting balances of systemic risk in the Chinese banking sector: Determinants and trends," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 76(C).
    7. Fittje, Jens & Wagner, Helmut, 2020. "Network topography and default contagion in China's financial system," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224605, Verein für Socialpolitik / German Economic Association.
    8. Wang, Yang & Xiuping, Sui & Zhang, Qi, 2021. "Can fintech improve the efficiency of commercial banks? —An analysis based on big data," Research in International Business and Finance, Elsevier, vol. 55(C).

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    More about this item

    Keywords

    Balance sheets; Interbank networks; Financial contagion; Systemic risk; China's banking system;
    All these keywords.

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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