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The risk contagion mechanism of shadow banking with dynamic network correlation

Author

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  • Jiang, Shanshan
  • Ju, Xin
  • Meng, Lingyi
  • Wang, Jie

Abstract

Since the global financial crisis, the study of systemic risks in banks has gained significant attention, with shadow banking playing a crucial role in influencing the systemic risks of commercial banks. Current research mainly starts from an empirical perspective. The current empirical research model has problems such as assumptions not meeting reality, making it difficult to analyze the risk contagion mechanism. And existing research mainly adopts linear models and static analysis, ignoring the nonlinear and time-varying characteristics between variables, which cannot reflect dynamic processes and objectively reflect the contagion of shadow banking risks. In order to construct a dynamic evolutionary relationship between systemic banking risks and shadow banking from a mechanistic perspective, this work constructs a shadow banking risk contagion model with commercial banks as the core, focusing on two typical shadow banking businesses: wealth management products and buy and sell transactions. Risk analysis is conducted from the perspective of network dynamic evolution, revealing the impact mechanism of shadow banking business on the stability of the banking system. The research results indicate that, in terms of the risk caused by wealth management products, the interest rate spread of wealth management products on deposits is the determining factor for the risk of the banking system. The mismatch of interest rates, scale, and maturity is closely related to the systemic risk of banks in buying and selling businesses. This research not only provides a quantitative research framework for shadow banking risks that can be calibrated using actual data but also supplies valuable reference for policymakers and regulatory bodies.

Suggested Citation

  • Jiang, Shanshan & Ju, Xin & Meng, Lingyi & Wang, Jie, 2025. "The risk contagion mechanism of shadow banking with dynamic network correlation," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 675(C).
    • Handle: RePEc:eee:phsmap:v:675:y:2025:i:c:s0378437125004492
    DOI: 10.1016/j.physa.2025.130797
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