A Comparative Study On The Invulnerability Of Banking Systems In China And The United States Based On Complex Network Theory

The banking system accounts for the core element of the financial system,thus preventing the systemic risks of the banking system is of overarching significance to maintaining the stability of the financial system and the healthy development of the economy.Given the in-depth development of financial liberalization,banks are interrelated by holding common assets,inter-bank lending,payment and clearing,derivatives,and other ways,gradually shaping a complicatedly connected financial network.Traditional economic methods have taken on some limitations when measuring the systemic risks of financial networks.For instance,they fail to depict the risk transmission path and mechanism of financial networks and indicate the changes of individual characteristic information in financial networks.Therefore,this study leveraged the method of complex network theory to study the invulnerability of the banking system based on the network perspective,so as to provide a scientific basis for preventing systemic risks of the banking system.From the perspective of network structure,this paper studied the network characteristics and individual characteristics of banking systems in both China and the United States(US).Based on the local and global viewpoints,this paper evaluated the systemically important banks(SIBs)of the foregoing two banking systems.The cascading failure dynamic model was adopted to fathom the invulnerability of the two banking systems.To be more specific,firstly,this paper applied the Co Va R method and LASSO regression to construct the banking systems of China and the US in different periods.Secondly,on the basis of the established banking system,this paper analyzed the overall characteristics of the two banking systems in question and the characteristics of each bank varying by periods and studied the risk transmission paths and the vicissitudes of risk contagion sources of the banking systems in the two countries.Thirdly,this paper assessed SIBs in the two banking systems mentioned herein in different ages in light of the local and global network connection.In addition,the cascading failure dynamic model was employed to comprehend the invulnerability and threshold of the Chinese and the US banking systems.Finally,it further analyzed the reasons for the difference of invulnerability between the two banking systems from the perspective of the network.The main conclusions of this paper are drawn as follows:By exploring the characteristics of the banking network during the financial crisis(the year of 2008)and the stable period(the year of 2019)in the US,it was found that in the course of the financial crisis,the connection of banking networks was closer,the correlation level between banks was improved,and the risk transmission paths were increased,which further proved that there was obvious risk contagion effect among banks during the financial crisis.By analyzing SIBs in the US banking system,it was implied that SIBs in that banking system registered certain distinctions among all periods.For example,during the financial crisis,the correlation between the US banks was extensive,resulting in operational difficulties that occurred in US banks throughout the financial crisis relative to the period of financial stability,which greatly affected the resilience of the US banking system.The research on the Chinese banking network in different periods demonstrated that with the lasting development of the Chinese banks,the relevance of the Chinese banking network had improved from 2007 to2020 in waves,and the risk transmission paths among banks had been diversified.According to the analysis of individual characteristics of banks,it was noted that the correlation level between banks mounted and the risk spillover effect between banks was intensified.Against the local and global backdrop,this paper evaluated SIBs in the Chinese banking network and found that with the change of time,SIBs in the Chinese banking network had been transformed from state-owned commercial banks and joint-stock commercial banks to city commercial banks and rural commercial banks step by step.The research on the invulnerability of the Chinese banking network reckoned that with the growth of the banking industry,the impact of banks’ difficulties on the invulnerability of the banking system gradually ramped up.The network characteristics and risks in China and the US were studied by comparison method,showing that in the Chinese banking system,the bank characteristics indicators in 2020 were similar to those in2008 in the increasing network characteristics of banks.There were two types of banks in the banking systems of China and the US,namely one with linear initial risks and the other with nonlinear initial risks,contributing to differences in the invulnerability changes incurred thereby.Regarding the impact on the invulnerability of the banking system,when a bank of the first type fails,its impact was greater than that of the second type.Vice versa.In case a bank of the second seizes up,its damage was more severe than that of the first type.Given so,varied initial risk states of banks presented distinct influences on the invulnerability of the banking system,suggesting that bank failures with different initial risk states resulted in dissimilar impacts on the invulnerability of the banking system.A comparative analysis of the network invulnerability threshold of the Chinese and the US banking systems denoted that the invulnerability threshold α of the Chinese banking system was between those of the American financial crisis period and the stable period.