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Networking topography and default contagion in China’s financial system

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  • Fittje, Jens
  • Wagner, Helmut

Abstract

The topography of China's financial network is unique. Is it also uniquely robust to contagion? We explore this question using network theory. We find that networks that are more concentrated are less fragile when connectivity is low. However, they remain in a robust-yet-fragile state longer than decentralized networks, when connectivity is increased. We implement Chinese characteristics into our model and simulate it numerically. The simulations show, that the large state-controlled banks act as effective stop-gaps for contagion, which makes the Chinese network relatively robust. This robustness is significantly reduced, if a significant share of the smaller banks are high-risk institutions.

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  • 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).
    • Handle: RePEc:zbw:ceames:172020
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    References listed on IDEAS

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    1. Fabio Castiglionesi & Noemi Navarro, 2020. "(In)Efficient Interbank Networks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(2-3), pages 365-407, March.
    2. Sun, Lixin, 2020. "Financial networks and systemic risk in China's banking system," Finance Research Letters, Elsevier, vol. 34(C).
    3. Rama Cont & Amal Moussa & Edson B Santos, 2013. "Network structure and systemic risk in banking systems," Post-Print hal-00912018, HAL.
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