Study Of Banking Risk Contagion Based On SIR Model

The contagion of the banking crisis happens when a bank is in a position lack ofliquidity due to reasons like economic fluctuations, and the insufficient liquidity statusspreads out to other banks with which have close business ties through financialmarkets, thus causing the transmission of crisis within banking industry. The bankingsector is the main components of the financial markets. The transmission of large-scalebanking crisis will not only destroy the healthy and orderly development of thebanking system as a whole, it will also be a serious impediment to the sustainabledevelopment of the real economy. While studies of the banking crisis infectiousprocess is prosperous in China, it still has a lot of space to be developed both in theoryand in modeling, so the research of the bank crisis contagion process is still of greatsignificance.In order to solve the shortcomings of existing method or model, the article clearlygives definitions, causes and contagion paths in the first place, and builds markedtreatment to every crisis-involved bank based on capital scale, degree of businessrelation and synthesis according to the Basel Committee regulations. Inspired by theSIR compartment model which studies the transmission of the virus, the author buildsa dynamic model of the contagion of banking crisis and investigates whether the crisisthreshold is obtained. Thus, three important conclusions are found: the spread of crisisdepends on the crisis spread threshold and relative size of the initial standardizednumber of risk exposure banks; increasing the crisis management coefficient andcrisis banks’ bankruptcy coefficient contribute to the control of the banking crisis;small and medium-sized banks-dominated regional bank structure helps to reduce thebanking crisis.The article puts up with some policy recommendations aims at perfecting thesupervision and regulation system according to the conclusion of the model and theexperience at home and abroad, including developing the regional small andmedium-sized banks, establishing a comprehensive regulatory and legal system, andthe establishment of a deposit insurance system to make effective prevention andsupervision to the contagion of banking crisis.