Economic uncertainty, shadow banking, and systemic risk: A perspective of interbank network structure analysis

The onset of a “Trump 2.0” era is expected to usher a new wave of global economic uncertainty, exerting profound effects on shadow banking activities and impacting systemic risk. Motivated by these concerns, we examine the dynamic evolution of systemic risk across various interbank network structures to investigate how economic uncertainty and shadow banking interact to propagate and accumulate risk. Our findings reveal that heightened economic uncertainty significantly amplifies the systemic risk posed by shadow banking, while shadow banking activities, in turn, increase the banking system’s sensitivity to economic fluctuations. Under minimal to intermediate economic uncertainty, uniformly connected networks exhibit greater risk resilience. However, in a substantial economic uncertainty environment, network structures featuring core hubs demonstrates superior stability. Furthermore, the rise in economic uncertainty diminishes the positive influence of shadow banking on bank liquidity, profitability, and investment opportunities, markedly lowering the bank survival rate and increasing the need for central bank interventions. Asset loss stress tests further indicate that elevated economic uncertainty severely weakens the resilience of interbank networks, with intense shocks risking systemic dysfunction and collapse.