The Influence Of Inter-bank Lending On The Stability Of The Banking System

The outbreak of the financial crisis shows that the traditional economic paradigm has obvious limitation for the prediction of financial crisis. Currently, more and more scholars began to study network science. They study the financial system from the perspective of network. They don’t study the system properties of the single financial institutions, but the interaction among institutions in the system.The banking system is an important part of the financial system. This paper studies the factors affecting the stability of the banking system by interbank lending. In the banking system, each bank was faced by liquidity shocks and randomness which due to the insufficient funds. Interbank lending alleviated the lack of liquidity of individual banks, but also caused the spread of the liquidity risk.This paper based on the network of banks to explore the interbank lending for the effect on the stability of the banking system from the properties and structure of the network. In the banking system, every bank may face asset liquidity and randomness of investment shortage. The interbank lending may compensate for liquidity shortage, but cause the spread of the risk. Based on the properties of the network, participants are divided into homogeneous and heterogeneous banks. This paper sets up interbank lending network model to explore when banks are limited to different lending relationship the change of the banking system stability. At the same time, this paper tries to find a critical to maintain a stable state by increasing relationship lending among banks.This paper selects four business relations existing in the banking system: relationship between the depositors and the bank, interbank lending, relationship between investment banks and institutions, relationship between banks and the central bank. In this paper, the bank network is divided into homogeneous and heterogeneous network. When study the network structure, this paper controls the scope of interbank lending by setting the bank network connection degree. In addition, there is not a massive bank bankruptcies in China. It is hard to find a suitable data for empirical analysis. So this paper choose MATLAB to simulation.To simulate the process of interbank lending, the paper draw the following conclusions:interbank lending showed two attributes-affordable and communicable. Under different network properties and structure, the two kinds of attributes are different. First, under the same connectivity, the stability of homogeneity network is better than heterogeneous network. When the interbank lending relationship among the homogeneity banks is bound to improve the stability of the system between. Second, under the same network attribute, the attribute of banks are limited to the homogeneity or heterogeneity. When connectivity is less than 6%, the stability of the banking system as the increase of the connectivity become decrease; When connectivity is more than 60%, the stability of the banking system as the increase of the connectivity become enhanced.