The Systemic Risk Contagion Of The Interbank Market In China

Since the slow recovery of the global economy, the national trends and monetary policy of every economy are clearly different. China continues to promote financial reform measures. With the growing wealth, size of transactions and members of the interbank market, inter-bank business become more complex, so that China’s banking industry is facing greater risk. In the post-crisis era, the management of bank risks is particularly important. How to prevent the banking system risk through effective financial regulatory also has practical significance.This paper try to use matrix method and lending data of 70 banks in 2010-2014 year to build the network of interbank lending market. Based on the network and the bank’s credit risk contagion channels theory, this paper use the improved conditions to simulate the systemic risk contagion and the following conclusions is:First, in recent years, China’s interbank market risk contagion effect gradually becomes smaller. Especially in 2013-2014 year, systemic risk is unlikely to be formed; Second, the Bank of China and Industrial and Commercial Bank of China is still systemically important banks in China, which is needed more attention. In addition, focusing on the risk of the State development Bank, China construction Bank, Industrial Bank is also needed, in order to cut off the source of infection. Besides, city commercial banks is more fragile when facing the risk, they will be infected, accumulating risk and expanding contagion effect. Third, when considering more than two banks as the initial source of infection impact the banking system, the results of which will be serious than the single bank. Fourth, the interbank system risk will be affected by a variety of factors, including the liquidity LGD, the degree of infection bank market participation, a single bank’s solvency and it’s contaction with the.source of infection banks.Based on these empirical results, this paper put forward the proposal to prevent the banking system risks:First, in the theoretical framework regulation, is to strengthen the financial safety net and establish macro-prudential supervision system; Second is to use the specific measures, do the prevention work in advance such as strengthening the risk of the warning mechanism, regulating the behavior of the interbank market members and enhancing immunity of the single bank. Besides, take the remedial measures when the risk happened, such as the government can intervene the process of the infection, the other inter-bank market members can rescue the failure members. All the measures will protect our banking system.