Analysis Of The Mechanism Of Financial Systemic Risk Contagion

With the development of economic globalization and financial liberalization,financial systemic risks are becoming more serious.There exist financial systemic risks whether it is the financial crisis period or the financial normal period.If risks are not solved in time and are accumulated for a long time,it will induce the financial crisis.Nowadays,it is a time of financial activities.To avoid the outbreak of the financial crisis,it is imperative to contain financial systemic risks in the stage of production and contagion.How to effectively monitor the contagion of financial systemic risks so as to prevent the outbreak of the crisis?This has triggered a heated discussion in academia and international regulatory authorities.This paper will investigate the systemic risk contagion from the following aspects:First of all,this study combs the mechanism and research methods of the systematic risk contagion.Secondly,the definition and characteristics of financial systemic risk are stated systematically on the base of previous studies.And it summarizes the source,formation and measure methods of financial systemic risk.As well as,we clarify in detail the concept of systemic risk contagion and distinguish its synonyms.Furthermore we introduce from a variety of perspectives the risk contagion channels.There are presented the process of solving the risk exposure matrix by the least-square method and the optimal information entropy and the indicators needed for the analysis of risk contagion.On the other hand,this paper introduces ARMA-GARCH model to estimate the heteroscedasticity of financial time series.Based on this,by exploiting the Granger causality model,we carry out a detection of systemic risk contagion.Next,according to the balance sheets of 15 representative banks in China,this paper calculates the corresponding risk exposure matrix.On this basis,the systematic risk contagion effects between 15 banks in China are studied by using the condition of judging the occurrence of contagionjij?cx(29).Specifically,there are two cases to consider: one is to study the contagious effects when these banks possess the same loss rate that keeps changing.The study shows that contagion effects is in proportion to the loss rate ?,the difference ? of the liquidity ratio before and after the loss and activity D;the other is to calculate different loss rates for each bank by improving the solution method proposed by Upper for the loss rate.The empirical analysis indicates that: Bank of Beijing is most vulnerable to risk,followed by Everbright bank and Huaxia Bank;China Constructionbank and China Citic Bank are the easiest to spread risk to other Banks.Comparing above methods and Zeng Li's method(capital adequacy ratio is less than 6%),we found that our proposed method is more suitable for practical application.On the other hand,this paper studies Granger causality correlation between 22 financial institutions.The researches show that: the correlation between financial institutions in China is gradually increasing;the Granger causality correlation within the bank is the largest so that they are the most vulnerable to systemic risk contagion;the securities sector is most contagious to the banking sector;insurance sector is least likely to get risk contagion and to spread risk to other other finance industries.Finally,it summarizes and analyzes the research results,and puts forward some suggestions and countermeasures on how to curb the occurrence of risk contagion.