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Do we need to consider multiple inter-bank linkages for systemic risk in China’s banking industry? Analysis based on the multilayer network

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  • Hu, Liqin
  • Gan, Yiran
  • Wen, Huailing

Abstract

We construct an inter-bank multilayer network that includes direct linkages through interbank transactions and indirect linkages through bond investment, and investigate the systemic risk in Chinese commercial banks in case of credit shocks, liquidity shocks and asset price shocks. According to our study, indirect linkages contribute more to systemic risk than direct linkages, and systemic risks from different types of shocks have different characteristics. We also find an intriguing non-linear effect in the aggregation of different linkages in the multiplex structure by comparing the total risk and the sum of systemic risk of all layers. This study suggests that the regulator should pay attention to the pervasiveness and dynamics of systemic risk, with a particular focus on risk contagion caused by indirect linkages among commercial banks.

Suggested Citation

  • Hu, Liqin & Gan, Yiran & Wen, Huailing, 2023. "Do we need to consider multiple inter-bank linkages for systemic risk in China’s banking industry? Analysis based on the multilayer network," Finance Research Letters, Elsevier, vol. 51(C).
    • Handle: RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322006109
    DOI: 10.1016/j.frl.2022.103433
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    References listed on IDEAS

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    More about this item

    Keywords

    Systemic risk; Multilayer network; Risk contagion;
    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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