A Research On The Interbank Risk Contagion And The Systemic Risk

After the outbreak of American subprime crisis in2007, with Lehman Brothers Holdings’ bankruptcy, other financial institutions also began to have problems, and eventually which led to banking systemic risk in USA. The crisis has caused scholars and regulatory authorities to study the reason of the banking systemic risk. Study found that due to American commercial banks and other financial institutions have formed a large financial system based on the linkages on the interbank market, and financial institutions in the system influence each other which leads to systemic risk. With the gradual marketization of China’s banking system and the continuous development of financial innovation and financial globalization, China’s banking system will face more complicated and changeable external environment factors. In addition, China commercial bank is highly vulnerable by itself, all of these reasons will improve the probability of bank systemic risk greatly. Besides, our country is in the key period of financial reform, and a hot spot of the current financial reform is to establish the deposit insurance system, banking work conference which held in January2014pointed out that all the preparatory work for the deposit insurance system was basically completed. At the same time, the CBRC(China Banking Regulatory Commission) is brewing up the launch of bank bankruptcy ordinance. This means that, if China’s bank operates improperly, it may also ruin. Based on the America lessons of the crisis and the reality of our country,studying the process and result of risk contagion among banks and putting forward prevention and supervision measures have great theoretical and practical significances.This paper mainly uses the matrix method and the combination of simulation and empirical data to estimate China’s interbank debts matrix, and simulate the impact on debts matrix, so as to study the risk contagion’s process and result in China’s banking system. We firstly do some theoretical analyses about interbank risk contagion and banking systemic risk, outline the basic model, and systematically elaborate four aspects:the relationship between interbank risk contagion and banking systemic risk, the mechanism analysis of interbank risk contagion, the model description of interbank risk contagion, the bankruptcy liquidation and payment algorithm of banks, which lay the theoretical basis for the following computer simulation experiment. Secondly, by simulating the impact, we study three influence factors on China’s interbank risk contagion respectively:the size of the initial bankruptcy, interbank borrowing ratio and bank capital ratio. Thirdly, given to the analysis of results, we proposed some policy recommendations from six aspects:allowing a single bank to go bankrupt, focusing on systemically important banks, strengthening the supervision of lending between banks, paying close attention to off-balance-sheet business, Strengthening the supervision of banks’capital adequacy level, perfecting the information disclosure system. Finally, we summarize the content of the dissertation simply, propose several points where still need to improve and our hopes on later research.The study results show that, if the assets size of initial bankruptcy is larger, the proportion of lending between banks is higher, the bank capital ratio is lower, the interbank risk contagion will be more serious and the percentage of occurrence of systemic risk will be higher. For influence extent, single bankruptcy will not cause interbank risk contagion basically, the increase of interbank borrowing ratio and the decrease of bank capital ratio will not influence the contagion result obviously. Under the crisis state, the probability of interbank risk contagion is large, the decrease of interbank borrowing ratio can influence the interbank risk contagion results obviously, which can prevent banking systemic risk significantly. When the interbank borrowing ratio is low, the changes in bank capital ratio can not change the contagion result significantly, but when the interbank borrowing ratio is large, the decrease of bank capital ratio can alleviate the interbank risk contagion significantly.There are three main innovation points in this paper. The first innovation is about research methods, we combine the network simulation and the real data, so that the research of interbank risk contagion is more clear. The other two aspects of innovation are about research angle, namely in the micro framework, we analyze the impact on the interbank contagion risk from the interbank borrowing ratio individually and from the interbank borrowing ratio and the bank capital ratio jointly. And by quantifying the contagion results, the conclusion is more convincing, and the form of expression is more clear. However, due to the limitation of the research data and the lack of my knowledge, this paper makes some assumptions and simulations, although the impact on study conclusion is not great, there may be some deviations between the study result of risk contagion in the banking system and the real situation, and the policies and measures proposed to guard against banking systemic risk still need to be tested and rich. I hope to do further discuss to the interbank contagion risk in the future research work.