Bank Systemic Risk Research, Based On The Interbank Lending Market

In recent years, the bank systemic risk is moving into people's views more and more. National financial regulators are increasingly focusing on the systemic risk of banks and control. This comes from a number of financial crises that has left us a profound lesson in recent years. "Contagion effect" has become the essential characteristics of banking crises, and has become a synonym for the systemic risk. With financial globalization deepened, banks and other financial institutions increasingly become closing to each other. This is a mixed result-- The Curate's Egg. On the one hand, a well functioning interbank market is essential for efficient financial intermediation. Its existence can be not only to help banks better manage their liquidity but also to achieve the most optimal allocation of resources. So interbank market is the product of the process of welfare enhancing in the banking system. However, on the other hand, interbank exposures imply the possibility of direct contagion:the insolvency of a single institution may trigger multiple bank failures due to direct credit exposures. This paper uses data on loans and deposits between 30 major commercial banks in our country to estimate the distribution of bilateral exposures.Then, the potential for contagion is examined by assuming the sudden failure of each individual bank and estimating the losses incurred to other banks as a result of the initial shock under a series of assumed LGDs. Our study found that the loss in the high default rate, the large exposure of banks will lead to the collapse of the core banking system, and deteriorating quality of assets. At a lower rate of default losses, the failure of individual banks is difficult to trigger a "domino" type of bankruptcy, but considerably weakened the banking system's core capital holdings. While at the same rate of default losses, with a large exposure state-owned commercial banks are severity to the impact of systemic risk far greater than other commercial banks. Overall, there is a significant effect of contagion in China's interbank market. And it has a significant influence to the systemic risk of banks. The analysis is able to provide strong theoretical support for regulators against to systemic risk of banks.