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Network topography and default contagion in China's financial system

Author

Listed:
  • Fittje, Jens
  • Wagner, Helmut
Abstract
The topography of China's financial network is unique. Is it also uniquely robust to contagion? We explore this question using network theory. We find that networks that are more concentrated are less fragile when connectivity is low. However, they remain vulnerable to the occurrence of large-scale default cascades at higher levels of connectivity than a decentralized network. We implement Chinese characteristics into our model and simulate it numerically. The simulations show, that the large state-controlled banks act as effective stopgaps for contagion, which makes the Chinese network relatively robust. This robustness persists even when a medium sized bank defaults.

Suggested Citation

  • Fittje, Jens & Wagner, Helmut, 2020. "Network topography and default contagion in China's financial system," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224605, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc20:224605
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    References listed on IDEAS

    as
    1. Sun, Lixin, 2020. "Financial networks and systemic risk in China's banking system," Finance Research Letters, Elsevier, vol. 34(C).
    2. Rama Cont & Amal Moussa & Edson B Santos, 2013. "Network structure and systemic risk in banking systems," Post-Print hal-00912018, HAL.
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    More about this item

    Keywords

    Interbank Network; Financial Contagion; China's interbank market; Financial market stability; Complex networks; Network topography;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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