A Study On Risk Margin System Of P2P Network Lending Platform

Peer-to-Peer(P2P) network lending market has been growing dramatically in China since 2013. However, without proper regulations, many P2 P lending platforms are trapped in the situation of liquidity drain, business failures or even misappropriating, which leads to great damage of the financial system. Some platforms took measures of refund commitments and funds in advance, bringing great risk to its own operation. According to the latest trends, getting rid of guarantee and establishing a risk margin system becomes an important part of risk management of P2 P network lending platforms.This paper introduces the development, operation mechanism and risk management of P2 P Internet based lending home and abroad. There exist lots of problems in risk management of Cina's P2 P lending platforms, such as the lack of escrows mechanism, information disclosure mechanism, lack of regulation and risk management. Thus, a coordination game of the P2 P networking lending platform risk margin model is established under the homogenous lenders and borrowers assumption. With the equilibrium conditions of equal expected utility for lenders and liquidity balance for the P2 P network lending platform, risk margin system model analyzed the risk of runs at the optimal risk margin level. This paper also introduces the marginal analysis of some key parameters to the optimal risk margin level, a numerical example and the policy implications of the corresponding conclusions. The result indicated that the margin level of risk for P2 P network lending platforms is not the higher the better. Besides, it is not a match that the margin levels for minimum risk and for maximum return, implying the inefficient feature of P2 P network lending market. Improving the buffer capacity to the risk of runs, the rate of historical loan recovery, the return rate required by lenders, and the accuracy of private information with respect to the accuracy of public information, help to reduce the risk of runs for the P2 P network lending platforms.This paper suggests that P2 P network lending platforms should improve its own risk management capacity, pay more attention to its own reputation, increase the rate of loan recovery, and do effort to explore quality borrowers and higher return projects for lenders. As for the regulatory authorities, they should take strong regulatory measures to establish an unobstructed information disclosure channel to maintain the stability of the P2 P network lending market system.