Systemic Risk From Cross-border Financial Flows

The 2008 Global Financial Crisis reveals the massive destructing power of systemic risk. Under the background of financial integration, increasing interconnectedness among various financial intermediaries, it is important and meaningful to do research on the identification of systemic risk and its contagion process.In the literature review, this paper summarizes the research on the definition of systemic risk and its causes, the measure of systemic risk, the contagion effect and financial networks. Then,this paper studies systemic risk and the contagion from the perspective of financial network. First,this paper builds a simple financial network model based on the bilateral financial flows matrix and designs metrics for systemic risk level,systemically important entity and vulnerability to risk. Second, a contagion model is built based on Furfine contagion theory. Then, this paper examines the model with BIS data among 13 countries.The results show that there is high level of systemic risk and there a clear and stable tier structure in the financial network since 2007. The most systemically important country could cause massive loss to the whole system. These results prove that the model built in this paper is reasonable and effective.