1. Financial structure and financial contagion from the network perspective.
- Author
-
BAO Qin and SUN Yan-xia
- Subjects
- *
BANKING industry , *INTERBANK market , *RISK assessment , *FINANCIAL statements , *BANK assets - Abstract
This paper estimates the interbank bilateral asset and debt positions based on different assumptions of interbank network structures by using data of China's banking sector. The network structure of interbank market is modeled to analyze the financial contagion caused by a singular bank failure. A multi-agent simulation model including heterogenous banks is built to study how interbank network structures and banks' balance sheet structures affect financial contagion. The results indicate that a core-periphery interbank structure would increase the influence of financial contagion compared with a complete network structure. Moreover, the balance sheet structure would affect financial contagion, with a higher equity ratio increasing financial stability and decreasing probability of financial contagion, and a higher interbank asset and debt ratio the opposite. This implies that regulation of systemic risk in banking sector should pay more attention to financial structure. [ABSTRACT FROM AUTHOR]
- Published
- 2014