Research On Contagion Mechanism Of Systemic Risk In The Banking Sector

The U.S. subprime mortgage crisis, out broken in 2007, made the banking sector suffered huge losses, a large number of bank close down, liquidation and reorganization. There was a wide range of bank systemic risk contagion. This contagion caused a bank in financial difficulty that would immediately spread to the surrounding banks or other closely linked in neighbor countries, causing systemic banking crisis and serious economic losses.To explain this economic phenomenon, this paper, from the view of risk contagion channels, builds a new analytical framework, researching on contagion model of a closed environment, inter-bank market and financial market respectively. The models show that in the period of banking systemic risk contagion, the hedge in the different rate of return of assets, "free rider" behavior of inter-bank and the state's own depleted reserves explain the phenomenon of systemic risk contagion in the banking sector. Then, through the model of analysis, I had drawn the factors of bank systemic contagion, and carried out an empirical test on the major factors. The results show that the damage degree of risk source and the foreign exchange reserves are significant while the volume of trade and exchange rate are not significant. Again, based on the factor analysis, I continually tested and simulated on systemic risk to contagion in the banking sector. The results show that bank systemic risk exists in contagion phenomenon of the across-regions and cross-market and that contagion the former is more obvious than the latter, that systemic risk contagion led to significant loss of bank assets, that the larger systemic shocks, the greater the loss of bank assets and the faster growth in the number of bankruptcies.Finally, the paper proposes the emergency and long-term measures to prevent and control systemic risk contagion in the banking sector. Among them, the emergency measures include to quell the source of contagion, to cut off contagion path of evolution from the individual crisis to systemic risk, to protect the contagion objects which suffered the systemic risk, to control the possible carriers that systemic risk contagion, while the long-term measures includes to properly deal with the consequences of contagion and to build security system to prevent the systemic risk contagion.