Research On Systemic Risk Rescue Strategy In Complex Financial Networks

The payment system is at the heart of the bank,serving as a “pipeline” for the financial and banking systems,and maintaining the monetary circulation required for all aspects of society,which is critical to the efficiency and well-being of the economy as a whole.When the interbank clearing network works smoothly,almost no one notices its existence;however,when it encounters a bank with sudden liquidity or solvency problems,the bank may block the payment of its direct creditor's claims,which may in turn jeopardize the payments of other agencies,and any major collapse in this area is likely to spread devastating shocks between institutions,financial markets and national borders.The underlying reason is that the payment system constitutes a very complex financial flow chain,leading to credit interdependence.In recent years,regulators have increasingly focused their attention on large-value payment systems on the grounds that any serious damage to the payment process can have widespread systemic consequences.In the context of the era of monetary and financial stability,the central bank's payment system objectives can be summarized as reducing risks and improving the efficiency of payment systems.Reducing risk is critical,but improving efficiency is a complementary goal.There are many aspects to efficiency that can be broadly divided into cost,speed,and robustness.Robustness includes the reliability of the service and the certainty of its impact,which may depend on the clarity of the rules or the accuracy of the relevant legal framework.Obviously,efficiency itself is an ideal goal,but in addition,it may be more necessary to achieve the goal of reducing risk.The large-value payment system(LVPS)has developed rapidly over the past 20 years,balancing the gap between providing liquidity and controlling settlement risks.Perhaps the most obvious change is that Deferred Net Settlement(DNS)system with better liquidity but affected by settlement risk has been widely replaced by Real Time Gross Settlement(RTGS)system,which can better control settlement risk.The intraday liquidity requirements of RTGS system can significantly exceed the liquidity of its direct members held overnight in their central bank accounts.In order to be able to process these payments,the bank borrows additional liquidity from the central bank and recovers liquidity during the day: that is,they rely in part on the funds they receive to settle their payments.The increase in liquidity demand brought by RTGS system means that intraday liquidity is the lifeline of the RTGS system.In the RTGS system,the central bank can also provide intraday liquidity to participants,thereby transferring the intraday credit risk of participating banks to themselves.Ideally,the central bank will provide this liquidity free of charge during the day as a settlement agent for the system,but this will require it to assume unacceptable levels of credit risk.However,the basic problem of payment system risk still exists,the difference is that the risk is borne by the central bank rather than the system participants.Therefore,the central bank must implement regulatory policies to mitigate this risk,while also enabling the system to function smoothly.It is worth noting that insufficient liquidity or insufficient liquidity recovery within the system may result in delays in payment and system inefficiency,which in turn leads to payment failure.Participants in the interbank payment system manage payment requests of different priorities to minimize their total cost.However,a single optimal strategy may conflict with system-wide optimality and may result in inefficiency and the bank's inability to fulfill its payment obligations in a timely manner.Providing payment services to allow banking institutions to fulfill their obligations is one of the key functions of the payment system,so the design and supervision of interbank payment systems is critical.The importance of this becomes more apparent when considering the amount of extra payments that must be processed each day.In addition,all payment systems have fraud,operational and systemic risks.The risk of fraud is addressed through appropriate internal payment processing procedures and insurance,especially for large-value payment networks,which limit operational risk by limiting access to sensitive facilities and establish backup or repetitive computer facilities.Systemic risk involves the possibility of one or more participants failing to resolve their daytime net debit position,resulting in a series of payment defaults similar to dominoes among payment network participants.That is to say,systemic risk comes from paying in the form of debt generated in the interim phase.The research model in this paper aims to identify systemic risks in the payment system,help to reveal the collapse of the interbank payment system during the financial crisis,and effectively prevent financial crises,and an analysis shot is provided to observe the special policy measures taken by the central bank during the crisis and the policy debate on post-crisis financial sector reform.The recent financial crisis has highlighted the importance of promoting financial stability through better regulation and supervision of financial institutions.Key aspects of regulatory reform include measuring and regulating systemic risks and appropriately designing macroprudential policies.As a means of achieving these goals,the Central Bank conducts refinancing and payment operations,and works closely with other regulators to analyze threats to financial stability,including system weaknesses,and participate in system development and policy measures to prevent financial crises.Therefore,maintaining the stability of the financial system(macroprudential supervision)is a common responsibility,and solving systemic risks is the core of new financial regulation.The research on systemic risk relief strategies proposed in this paper is multifaceted.First,it is worthwhile to study the determinants of bank defaults and determine how the interbank network structure affects the likelihood of individual bank defaults.Second,on the surface,the core question is whether bank risks should be eliminated from the payment system or whether it is sufficient to limit such risks with appropriate safeguards.Finally,we can extend our framework to determine the best governance.Future research may also hope to include how to approve,extend,and revoke interbank payments when dealing with banking crises,which will help to study how the bank's actual behavior contributes to or reduces the outbreak of the banking crisis.The content of this paper is structured as follows.Chapter 1 discusses theoretical research,shows the background and significance of this paper,and summarizes the literature on scholars' systematic risk and rescue strategies in complex financial networks.Chapter 2 discusses the network approach to studying the stability of financial systems,paying particular attention to the formation and contagion mechanisms of systemic risk in complex financial networks,analyzing how it is formed and disseminated,and clarifying its inherent contagious mechanism.In Chapter 3,through the mathematical modeling of systemic risk contagion,combined with the complex network model and SIRS model,the systemic risk contagion simulation under different network topologies is constructed.This chapter introduces two liquidity rescue strategies to analyze the improvement of systemic risks by different liquidity injection methods.Then,by adjusting the risk infection rate,preventive rescue rate and preventive rescue failure rate,we will further study the evolution process of risk contagion during the systemic crisis from a macro perspective.Chapter 4 discusses the selection strategy based on the SIRS model,focusing on the analysis of the choice of systemic risk rescue objects from a micro perspective.The choice of salvage object is the question of who should be rescued in the rescue strategy.For different rescue strategies,this chapter studies its advantages and disadvantages relative to the benchmark strategy,and analyzes the impact of network communication indicators and threshold settings on the rescue effect.In Chapter 5,the performance evaluation of the rescue strategy and its policy implications are discussed.In this article,bailout is a solution that includes salvage,rescue methods,and performance evaluation.To compare different rescue strategies,it is necessary to determine the evaluation of the performance of the rescue strategy.This paper will conduct research based on the above content,improve the validity and feasibility of the research results,and then propose policy recommendations with both theoretical basis and practical value.Chapter 6 is mainly a summary and review of the research perspective of this paper,and looks forward to the future research direction.The results of this paper provide new insights into the drivers of financial instability and provide insights for bank prudential regulation.Firstly,through the systematic risk infection simulation under different network structures,combined with the complex network model and the SIRS model in epidemiology,and it is financially transformed to adapt to the risk contagion analysis and rescue analysis of this paper from a macro perspective.This study shows that risk transmission is more rapid in random networks,and its system robustness is relatively weak;the scale-free network shows relatively high robustness,and the risk contagion is relatively rapid,but it quickly reaches the equilibrium of risk contagion,showing a characteristics of “Robust yet Fragile”;due to the short average path length of smallworld networks,the links between nodes are weak,and the risk contagion is relatively weak.Secondly,introducing a liquidity rescue strategy and finding that the strategy of balancing the rescue of all nodes affected by the initial impact is strictly dominant;in addition,by adjusting the risk-contagion rate,preventive rescue rate and preventive rescue failure rate,it is found that the risk-reducing rate reduction strategy has the strongest rescue sensitivity under the scale-free network and the small-world network structure,and the rescue strategy is more applicable;the strategy of improving the preventive rescue rate is the best under the small-world network structure,and the strategy of reducing the preventive rescue failure rate is not sensitive to the rescue in the three network structures,and the rescue effect is weak.Finally,in order to better analyze the risk contagion and rescue from the microscopic perspective,the selection strategy research based on SIRS model is used to analyze the choice of systemic risk rescue objects.The research in this paper shows that in the one-dimensional time model,the rescue strategy for partial preventive rescue of all participants is overall optimal;in addition,certain institutions should be phased out or reorganized in a timely manner,which can alleviate systemic risk shocks to a certain extent.In the two-dimensional spatial model,it is found that the closed rectangle preventive rescue strategy is strictly superior under different infection rates(regardless of preventive rescue failure),and the splash rescue strategy is slightly better than the 4points rescue strategy.The risk spread under the Von Neumann`s neighborhood scenario is more rapid,and the rescue effects of the four rescue strategies are not satisfactory under the high preventive rescue failure rate.In summary,the model studied in this paper is a useful tool in the financial stability analysis toolbox because it highlights the concentration of risk,but it does not constitute the core of the model for predicting crisis.In the worst case,it gives a false sense of security while still not preventing the crisis.In addition,although the research in this paper focuses on interbank payment systems,it can be easily extended to other financial institutions,such as securities firms and insurance companies,to gain a broader understanding of the systemic risks of the financial industry.