The Study On Risk Contagion In Banking Under Explicit Deposit Insurance System

Explicit deposit insurance system is China's new basic financial system and its important role is maintaining the stability of banking system. This mechanism in addition to make financial institutions market exit, but also to prevent bank runs and risk contagion. Individual bank failures run is not terrible, which terrible is the bank runs and interbank contagion risk. A wide range of bank risk contagion occurs before systemic banking crisis. And international experience tells us that the explicit deposit insurance system does not completely block the risk of infection between banks.Therefore, this paper focuses on how our country current explicit deposit insurance system in the prevention of contagion risk in banking. And what is the mechanism of contagion risk in banking. On the basis of literature review, analysis of the concept and the related theory, the paper draw lessons from the facts of the historical experience and observes the relationship between explicit deposit insurance system and the bank crisis. Then according to the international experience and explicit deposit insurance in China, the paper analyses China's current dominant deposit insurance system design and the impact of explicit deposit insurance system on China's banking industry. Then taking this as the background, from the theory of China's banking risk contagion between potential channels and influence factors. The article thinks, current explicit deposit insurance system in has good effect to prevent a wide range of bank runs the risk of infection, but can not effectively prevent financial risks through different channels transmitted in the interbank. In China's banking risk contagion mainly through internal and external sources of infection, respectively is by interbank funds payment clearing and inter-bank credit lending constitutes the internal channels and capital market and information channels constitute the external channels. The moral hazard incentive of explicit deposit insurance system, the network structure of banks, the homogenization of loan business and the development of asset securitization will have an important impact on the contagion risk intensity of banks. The paper use the data of 16 banks in China and matrix method to simulate the contagion risk in banking. The empirical results show that, such as ICBC and other large banks can occur strong contagion risk, some other small banks such as Beijing bank are vulnerable to the contagion risk in banking. Finally, it puts forward the countermeasures and suggestions to prevent and control the risk of contagion between banks in the three aspects of prevention, supervision and ex post disposal.