Research On Risk Contagion Of Financial Multilayer Network Based On Stress Feedback

The global financial crisis in 2008 fully exposed that the risks of the financial system will aggravate the fluctuations of the real economy,and the shocks of the real economy will further expand the risks of the financial system.As the main component of the real economy,firms have to be taken into account in the study of systemic risk.The complex business links between financial institutions and between financial institutions and firms form a financial multilayer network,providing channels for risk propagation.Especially under the general pressure of the macroeconomic downturn,once firms’ profits decline or are subject to external shocks,risks will be transmitted through the association with financial institutions,generating endogenous stress,and continue to accumulate and spread in the form of feedback,eventually resulting in systemic risk.Therefore,it is of great theoretical and practical significance to build a financial multilayer network risk contagion model on the basis of considering the stress feedback for more effective prevention of systemic financial risks and promoting the financial system to better serve the real economy.Up to now,the research on systemic risk in the bank-firm network is insufficient,mainly focusing on the one-way spread of risks,but less on risk feedback between them.Some research has proved that stress feedback between banks and firms can amplify the shocks,but limited to study on risk feedback in the credit network,paying little attention to other business links between financial institutions and firms.In view of the problems existing in the current research,this paper constructs an inter-financial-institution multilayer network and a bank-firm multilayer network based on the lending association and shareholding association between them,expands the risk feedback between financial institutions and firms to a multilayer network form,and builds a financial multilayer network risk contagion model based on stress feedback.Firstly,this paper constructs a financial multilayer network consisting of the lending layer and the shareholding layer and describes the stress feedback mechanism in the network.Then,based on the principle of mark-to-market and the idea of differential Debt Rank,this paper deduces how the stress of financial institutions and firms is transmitted and dynamically updated.Finally,the systemic risk is estimated under the initial external shock.Based on this model,the data of Chinese listed financial institutions and listed firms are used to analyze the structure and risk contagion of the financial multilayer network.The results of network structure analysis show that each layer of the inter-financialinstitution multilayer network and bank-firm multilayer network presents a "core-periphery" feature.In the inter-financial-institution lending network and the bank-firm credit network,stateowned banks are at the core positions,while the core of the inter-financial-institution crossshareholding network and the bank-firm shareholding network are large non-bank financial institutions.The lending relationship among financial institutions is closer than the shareholding relationship,but the gap between their degree and strength is gradually narrowing.The participation of different types of nodes in different layers of the multilayer network is highly heterogeneous,and state-owned banks,large joint-stock banks,and insurance institutions are active in every layer of the financial multilayer network constructed in this paper.In the bankfirm multilayer network,financial institutions are more active than firms.The similarity between the layers of the inter-financial-institution multilayer network and the bank-firm multilayer network is very low.Financial institutions have adopted diversified strategies in terms of lending and equity investment.The results of risk contagion analysis indicate that financial institutions show higher systemic importance in the lending layer,and the lending relationship is the main channel of financial risk contagion.The systemic importance of the state-owned banks in the lending layer has always been high,while among the systemically important financial institutions in the shareholding layer,more than 60% are non-bank financial institutions,with Ping An and CITIC Securities being the most systemically important.Manufacturing firms dominate the top 20 systemically important firms both in the lending and shareholding layer,and the proportion of state-owned firms is also high.Systematically important financial institutions and firms in the aggregation layer have a high overlap with the lending layer,but the shareholding relationship plays an increasingly important role in risk contagion and accumulation,especially for firms.The manufacturing industry has the highest risk in the aggregation layer,and the risks of the construction industry and real estate industry are also high.There is a nonlinear effect of risk contagion in the financial multilayer network,that is,the risk of the aggregation layer of the multilayer network is greater than the sum of the risks of the lending layer and the shareholding layer.The nonlinear effect of firms is more significant than that of financial institutions,and the nonlinear effects of financial institutions with different systemic importance or firms with different risk characteristics are quite different.By transforming risks of one form into another form,cross-layer contagion of risk in the financial multilayer network is realized.Cross-layer contagion of risk in the multilayer network increases the speed and the rounds of risk contagion,resulting in risks accumulating more and at a faster speed.To sum up,by constructing a financial multilayer network risk contagion model based on stress feedback,this paper reveals the structural characteristics and complex business associations of the inter-financial-institution and the bank-firm multilayer network,identifies systemically important financial institutions,firms,and industries in each layer of the network,finds the role of various business links in risk contagion,and describes the risk contagion characteristics in the multilayer network.It provides a theoretical basis for regulators to formulate corresponding policies for systemically important financial institutions,firms,and industries,guide financial institutions to support firms’ development in a standardized manner,and prevent industry aggregation risks.It also provides a reference for the regulatory authorities to consider the impact of the interaction between different business links on systemic risks,pay attention to the risks brought by shareholding links,and better maintain the stability of the financial system and the real economy.