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Risk contagion among banks: evidence from Chinese data

Author

Listed:
  • Hong Zhao
  • Yiqing Lei
  • Ying Zhang
  • Lingxiang Li

Abstract

This study investigates risk contagion in the financial system using a sample of 140 Chinese banks. We create the risk contagion index, with and without bank WMPs (Wealth Management Products), and bank’s lending matrix. Based on the index, we find Industrial and Commercial Bank of China (ICBC), Industrial Bank, and Bank of Shanghai to have the highest contagion risk among, respectively, state-owned, joint-stock and city commercial banks. We simulate risk contagion with these three banks as the initial bankrupt banks and at a wide range of default loss rates. We find that their hypothetic bankruptcies do not cause other banks to follow suit, but smaller banks are more subject to the contagion effect of systemic risk. Further results show that banks with WMPs cause greater risk contagion than those without.

Suggested Citation

  • Hong Zhao & Yiqing Lei & Ying Zhang & Lingxiang Li, 2023. "Risk contagion among banks: evidence from Chinese data," Applied Economics Letters, Taylor & Francis Journals, vol. 30(10), pages 1374-1380, June.
    • Handle: RePEc:taf:apeclt:v:30:y:2023:i:10:p:1374-1380
    DOI: 10.1080/13504851.2022.2056120
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