A Study On Risk Contagion Effect Of Commercial Banks Based On The Perspective Of Systemically Importance

With the deepening of financial liberalization, financial services industry continues to evolve. And as to the increasingly close links between banks, banks become more sensitive to external risks and other banks’risk profile, which increases the possibility of the rapid spread of the risk. The financial crisis that occurred in recent years began with the failure of one single institution, and then ended up with the failure of the entire financial system. We should not only monitor the individual bank’s risk indicators, but also be concerned about the risk profile of the entire banking system to assess the risk of the whole system, in considering the risk of infection after a crisis situation. Basel Committee on Banking Supervision first proposed the concept of systemically important banks. SIBs are likely to become sources of the risk contagion and exacerbate the instability of the entire system due to its negative externalities.The paper studies our country’s commercial banks’risk contagion mechanism on the aspect of contagion sources, contagion channels and contagion effect. It starts from the special nature of banking risks, analyzes the characteristics of risk contagion and its genesis theories. Further research is conducted to analyze the contagion channels and to identify SIBs as the potential contagion sources. Then I analyze the banks’risk profile combined with China’s actual situation, and evaluate our country’s SIBs with the indicator method using data in recent years. It turns out that in addition to five big banks, IB, CMB, SPDB and other joint-stock banks may also become SIBs. And then I use the data on capital market to estimate quantitatively the links between SIBs and other banks in extreme risk circumstances combined with the method of GARCH model, VaR and Copula function. By this way, I measure the inter-bank risk contagion effect and confirm that SIBs are sources of contagion, BONJ, BOBJ and other small banks are vulnerable to contagion. Finally, in order to guard against the contagion, I make two policy recommendations on the aspects of control the contagion sources and block contagion channels. This paper studies the bank contagion effect from the perspective of systemically importance innovatively and uses Copula function for quantitative analysis to better understand the mechanisms of risk contagion with strong theoretical and practical significance.