Analysis On The Patterns And Influencing Factors Of Contagion Risk In Chinese Commercial Banks

Outbreak of the financial crisis in a country usually resulted from the continuous risk accumulation. In the development process of the financial crisis, the risk contagion played an important role. In recent years, China’s interbank market is booming, and the size of the market gradually expanded. On the one hand, it is very convenient for banks to lend and borrow short-term bank money in the interbank market. On the other hand, the interbank business may become channels of risk contagion. This paper reviews the literature of the past, found previous studies study the risk contagion behavior and characteristics of the bank from the qualitative point of view. Even from the quantitative research of the behavior of bank infection, these paper either are based in a given year data to observe the effect of a bank’s failure to other banks, so that the article does not have a general conclusion, or are based on numerical simulation computing, which constructed interbank network between banks, examine the different influence of risk contagion due to the changes of the network structure or the bank’s behavior. But all the data in the numerical simulation methods are from the simulation, so the study may lack realistic reference value. This paper adopt the matrix methods to constructed interbank network between banks, choose the algorithm according to the actual situation, and observed the behavior of risk contagion in the absence of financial safety net and prompt financial salvation when financial difficulties occurs. In this paper, the loss rate of the bank assets under the worst case scenario is regarded as the dependent variable, the proportion of state-owned banks’ interbank loans or interbank liabilities in the entire banking system, the average capital adequacy ratio of banks, the dummy variable of state-owned banks’ capital adequacy, quarterly GDP growth rates, inter-bank lending term spread and seasonal dummy variables as independent variables. This paper established a linear regression model which goodness of fit is high and the joint test parameters are significant, so the results are more reliable. This article includes the following sections:The first part includes the introduction, mainly for research background, significance, domestic and foreign research, the research framework and at innovation and deficiencies.The second part introduces connections and difference between the risk contagion and systemic risk, explains the dual role of the interbank market, and the reasons of bank risk contagion for the theoretical analysis.The third part introduces the basic principles of matrix method, default algorithm of interbank contagion risk and banking market structure, and illustrates the behavior of the risk of infection among banks.Part four select multiple variables to build linear regression models which were considered under three different LGD, regression analysis results were also given.The last part is the conclusions and suggestions. The conclusions were summarized and relevant policy suggestions were given.The main conclusions are as follows:1. the risk contagion is related to LGD, LGD determine whether risk contagion occurs and the amount of loss; 2 the character of risk contagion changed as time passed by; 3. the risk contagion of the banking is not only affected by the structure of the interbank market, but also by the capital adequacy ratio of the central bank; 4. the risk contagion of banks is counter-cyclical; 5 The higher capital adequacy ratio of the bank system, the less banks may loss. Accordingly, we propose the following policy recommendations: both macro-prudential and micro-prudential regulation should be considered; commercial bank should establish risk isolation mechanism; risk monitoring and early warning mechanisms is needed to prevent the risk of infection occur in advance; improve systemically important banks’ capital.