Systemic Risk Contagion And Impact In Global Financial Network

In this paper the balance sheet data of 320 financial institutions are used to investigate the network interconnectedness and risk contagion effects in the global financial system.By constructing the bilateral exposure matrix,the log-log technique is used to evaluate the network structure.The network topology has shown that the commercial banks maintain the most significant interbank transactions and the closest correlation with other financial institutions.The network-centric measures indicate that the global financial market network of funds borrowing and lending is mainly dominated by large and medium-sized financial institutions.It is important to pay attention to important institutions,which are crucial for the risk contagion within the global financial network.Referring to the theoretical framework by Haldane & May(2011),we investigate the impact of credit shock and liquidity shock if the Credit Agricole is supposed to be in distress.The simulation results illustrate that the credit shock does not play a significant role in risk contagion.The institutions with low capitals and high volume with distress institutions are more vulnerable to the liquidity shock.Compared with the default loss rate,the discount rate plays a more significant role in the risk contagion.On the other hand,the discount rate and the rollover ratio have shown opposite effects.The larger rollover ratio can reduce the probability for large-scale bankruptcy in the financial system.When the credit shock and liquidity shock overlaps with each other,the contagion effects are amplified.The giant institutions are the key nodes in the global financial network.The identification and regulation on G-SIBs are necessary in order to restrain the impact of systemic risk contagion.Without prompt and effective early warning and bailout measures,the risk can prop-agate within the global financial network quickly and the systemic risk arises.An early warning system could be beneficial for important institutions to prevent from significant loss and to reduce the probability of systemic risk.