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How does risk information dissemination affect risk contagion in the interbank market?

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  • Zhinan Li
  • Xiaoyuan Liu

Abstract

This paper distinguishes between local and global risk information and disaggregates risk information dissemination in the interbank market based on specified behavioural mechanisms: information disclosure and transmission, information acquisition and decision-making. It then explores the mechanisms whereby such dissemination affects risk contagion in the interbank market and verifies through computational simulations how risk information dissemination, banks’ information acquisition capability, and information disclosure strategies affect risk contagion in the interbank market. The study shows that risk information dissemination markedly increases—and greater bank information acquisition capability reduces—the scope of contagion in the interbank market. Moreover, the greater the tendency of banks is to disclose positive information, the greater the mitigating effect of this information on contagion in the interbank market. In addition, market noise has a positive effect on contagion, while the risk information transmission rate has a U-shaped influence on contagion.

Suggested Citation

  • Zhinan Li & Xiaoyuan Liu, 2022. "How does risk information dissemination affect risk contagion in the interbank market?," PLOS ONE, Public Library of Science, vol. 17(7), pages 1-17, July.
    • Handle: RePEc:plo:pone00:0270482
    DOI: 10.1371/journal.pone.0270482
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    References listed on IDEAS

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    1. Bo Zhu & Xin Hu & Yuanyue Deng & Renda Lin, 2023. "Systemic risk prevention policies targeting systemically important banks: Does clustering pattern matter?," PLOS ONE, Public Library of Science, vol. 18(4), pages 1-27, April.

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