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Systemic Risk with Multi-Channel Risk Contagion in the Interbank Market

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  • Shanshan Jiang

    (School of Management Science and Engineering, Nanjing University of Information Science and Technology, Nanjing 210044, China)

  • Jie Wang

    (School of Management Science and Engineering, Nanjing University of Information Science and Technology, Nanjing 210044, China)

  • Ruiting Dong

    (School of Management Science and Engineering, Nanjing University of Information Science and Technology, Nanjing 210044, China)

  • Yutong Li

    (School of Management Science and Engineering, Nanjing University of Information Science and Technology, Nanjing 210044, China)

  • Min Xia

    (Jiangsu Collaborative Innovation Center on Atmospheric Environment and Equipment Technology, Nanjing University of Information Science and Technology, Nanjing 210044, China)

Abstract

The systematicness of banks is an important driver of financial crisis. Overlapping portfolios and assets correlation of banks’ investment are important reasons for systemic risk contagion. The existing systemic risk models are all analyzed from one aspect and cannot reflect the real situation of the banking system. In the present paper, considering the overlapping portfolios and assets correlation, a contagion network model with multi-channel risk is proposed, which is with interbank lending (direct contagion channel), overlapping portfolios (indirect contagion channel), and assets correlation (indirect contagion channel). In addition, the model takes investment risk as an impact factor and learns the operation rules of the banking system to help banks compensate for liquidity through asset depreciation. Based on the proposed model, the effects of assets correlation, assets diversity, assets investment strategy, interbank network structure, and the impact of market density on risk contagion are studied and analyzed quantitatively. The method in this paper can more truly reflect the banking system risk than the existing model. This paper provides a solution for quantitative analysis of systemic risk, which provides powerful tools for macroprudential stress testing and a reference for regulatory authorities to prevent systemic risk.

Suggested Citation

  • Shanshan Jiang & Jie Wang & Ruiting Dong & Yutong Li & Min Xia, 2023. "Systemic Risk with Multi-Channel Risk Contagion in the Interbank Market," Sustainability, MDPI, vol. 15(3), pages 1-24, February.
    • Handle: RePEc:gam:jsusta:v:15:y:2023:i:3:p:2727-:d:1055743
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    References listed on IDEAS

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