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Risk contagion in the cross‐border banking network: Some new evidence
Author(s) -
Chen Bing,
Li Li,
Peng Fei,
Salim Ruhul
Publication year - 2020
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.1763
Subject(s) - interbank lending market , market liquidity , monetary economics , deleveraging , balance sheet , economics , financial system , financial contagion , liquidity risk , funding liquidity , systemic risk , business , financial crisis , finance , macroeconomics
This paper applies consolidated banking statistics data from the Bank for International Settlement to simulate risk contagion in a cross‐border banking system with shocks of credit and liquidity. Simulation results from balance sheet network analysis show that the banking systems of the United States and United Kingdom are the most systemically important systems under the credit shocks in June 2008. Moreover, banking system's counter‐shocks ability is directly related to its size and concentration of foreign claims. The banking systems of German and French are the most systemically important systems under the liquidity shocks. Some banking systems depend heavily on German and French banking systems for financing and are vulnerable to liquidity shocks. Risk transfer has influence on risk contagion in the cross‐border banking system. After the subprime crisis, cross‐border risk contagion has declined because of deleveraging foreign claims. Raising the capital level of the banking system or intervention in the interbank market to enhance the liquidity of the market under pressure scenarios can reduce the contagion effect of credit or liquidity shocks.