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Contagion Risk In An Evolving Network Model Of Banking Systems

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  • SHOUWEI LI

    (School of Economics and Management, Southeast University, Nanjing 211189, China)

Abstract

This paper develops an analytical model of contagion risk in banking systems with tiered structure. It explores the respective effects of banking network structure and bank activity on contagion risk in banking network evolution. The findings suggest that increasing interbank connections is conducive to handling banking crisis and reducing the effect of contagion risk, but its positive effect is limited; raising bank reserve ratio will enhance the stability of individual banks to a certain extent, but it may immediately lead to liquidity problems for banks that have less excess reserves, causing the occurrence of contagion risk; an excessive drive for risk assets with high return may bring high risk to banks and lead to instability of banking systems; the bank risk preference is crucial to the stability of banking systems, and the radicalness of it may lead to greater systemic instability.

Suggested Citation

  • Shouwei Li, 2011. "Contagion Risk In An Evolving Network Model Of Banking Systems," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 14(05), pages 673-690.
    • Handle: RePEc:wsi:acsxxx:v:14:y:2011:i:05:n:s0219525911003438
    DOI: 10.1142/S0219525911003438
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    References listed on IDEAS

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    1. Simon Wells, 2004. "Financial interlinkages in the United Kingdom's interbank market and the risk of contagion," Bank of England working papers 230, Bank of England.
    2. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
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    5. Co-Pierre Georg & Jenny Poschmann, 2010. "Systemic risk in a network model of interbank markets with central bank activity," Jena Economics Research Papers 2010-033, Friedrich-Schiller-University Jena.
    6. repec:zbw:bofrdp:2009_006 is not listed on IDEAS
    7. Richard J. Herring & Susan Wachter, 1999. "Real Estate Booms and Banking Busts: An International Perspective," Center for Financial Institutions Working Papers 99-27, Wharton School Center for Financial Institutions, University of Pennsylvania.
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    Citations

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    Cited by:

    1. Zhang, Minghui & He, Jianmin & Li, Shouwei, 2018. "Interbank lending, network structure and default risk contagion," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 493(C), pages 203-209.
    2. Morteza Alaeddini & Philippe Madiès & Paul J. Reaidy & Julie Dugdale, 2023. "Interbank money market concerns and actors’ strategies—A systematic review of 21st century literature," Journal of Economic Surveys, Wiley Blackwell, vol. 37(2), pages 573-654, April.
    3. Shouwei Li & Shihang Wen, 2017. "Multiplex Networks of the Guarantee Market: Evidence from China," Complexity, Hindawi, vol. 2017, pages 1-7, July.
    4. Tingqiang Chen & Binqing Xiao & Haifei Liu, 2018. "Credit Risk Contagion in an Evolving Network Model Integrating Spillover Effects and Behavioral Interventions," Complexity, Hindawi, vol. 2018, pages 1-16, March.
    5. Jiang, Shanshan & Fan, Hong, 2018. "Credit risk contagion coupling with sentiment contagion," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 512(C), pages 186-202.
    6. repec:wsi:acsxxx:v:21:y:2018:i:08:n:s0219525918500200 is not listed on IDEAS
    7. Li, Shouwei & Sui, Xin, 2016. "Contagion risk in endogenous financial networks," Chaos, Solitons & Fractals, Elsevier, vol. 91(C), pages 591-597.

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