Research On Systemic Risk Of The Banking Industry In Countries Along The Belt And Road From The Perspective Of Tail Connectedness

With the increasingly severe global economic and financial environment,systemic risks prevention and macro-prudential supervision have become important financial regulatory goals of international community.In 2013,the proposal of the Belt and Road Initiative(the B&R Initiative)can give play to the complementary economic structures of the B&R member countries and deepen regional economic and trade cooperation,but it still inevitably faces many barriers in concrete implementation.Obviously,financial fragility is an unavoidable common challenge for countries along the Belt and Road to achieve regional economic prosperity.As the core financial sector of the B&R countries,banking industry plays a key role in financial support in frequent economic and trade activities and allocation of financial resources,so it is necessary to maintain the financial stability of the B&R banking industry.To this end,the research on the systemic risk of the banking industry in the B&R countries is an important topic that directly faces the real financial needs and contains rich academic value.In this paper,we first review the existing literature and summarize the frontier methods of banking connectedness and systemic risk analysis Then,we sort out relevant basic theories to guide subsequent empirical research.Through data collection and screening,we select 377 listed banks in 39 B&R countries as sample institutions.To accurately describe the distribution profile and evolution characteristics of systemic risk,we adopt the tail-event driven network(TENET)framework to explore the connectedness and systemic risk of the B&R banking industry in four levels(i.e.,system,region,country and institution)from the perspective of tail connectedness.Some interesting and profound findings are found in the empirical work of the four levels.In the system level,the total connectedness(TC)clearly captures important financial events in the sample period(e.g.,the 2015 China stock market crash,the 2016 Brexit referendum,and the 2018 currency crisis in emerging countries),which can be served as the timely early warning of systemic risks in the B&R banking industry.In the regional level,the intra-regional tail risk spillovers in the B&R banking system are remarkably stronger than the inter-regional tail risk spillovers during the post-crisis period.In the country level,the crossborder merger and acquisitions(M&As)and the merchandise trade export are important tail risk contagion channels among the B&R countries.In the institutional level,the ranking of sample banks based on tail connectedness and systemic importance indexes reveals that large banks have higher systemic risk contributions,while small and medium-sized banks may have strong tail connectedness.In general,the practical model framework and rich research findings of this paper will help to provide risk measurement tools and empirical references for the early warning monitoring and international coordinated supervision of systemic risks in the B&R banking industry.