Research on the Invulnerability of Chinese Banking System

Hengguo Luo

doi:doi:10.11648/j.ijefm.20210903.13

| Peer-Reviewed

Research on the Invulnerability of Chinese Banking System

Hengguo Luo

Published in International Journal of Economics, Finance and Management Sciences (Volume 9, Issue 3)

Received: 21 April 2021 Accepted: 4 June 2021 Published: 10 June 2021

Views: Downloads:

Download PDF

Share This Article

Twitter
Linked In
Facebook

Abstract

Based on the stock transaction data of China's listed banks from 2007 to 2020, this paper constructs the complete network of tail risk spillovers among banks using the Least Absolute Shrinkage and Selection Operator (LASSO) quantile regression, and dynamically examines the characteristics of the network topology and the survivability of China's banking system. The results show that the newly listed banks are mainly the risk bearers. The role of a single bank as an isolator, risk bearer and risk disseminator in the network will change over time. City commercial banks have gradually changed from the role of risk bearer to both risk bearer and risk disseminator. The attack experiments on the Bank of China, China Merchants Bank, China CITIC Bank and Zhengzhou Bank those have the largest number of weighted media in the network for the networks of 2016, 2018, 2019 and 2020, show that large-scale cascading failure can occur in the network by changing the parameters. If the attacked bank is a risk communicator, a larger cascading effect may occur, in turn, lead to the Invulnerability of the whole network reduced. In addition, we find that the scale of network cascading failure is related to the type of attacked bank and the characteristics of its adjacent banks: if the neighbor bank is the risk bearer, the risk will not be passed down; If its adjacent banks are risk dispersers, the risks will be further spread and expanded, that is, the scale of cascade failure depends on the cluster structure of the network.

Published in	International Journal of Economics, Finance and Management Sciences (Volume 9, Issue 3)
DOI	10.11648/j.ijefm.20210903.13
Page(s)	112-118
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Risk Spillover Network, Topology Analysis, Risk Contagion, Invulnerability

References

[1]	Battiston, S., Farmer, J. D., Flache, A., Garlaschelli, D., Haldane, A. G., Heesterbeek, H., Hommes, C., Jaeger, C., May, R., & Scheffer, M. Complex systems. Complexity theory and financial regulation [J]. Science, 2016, 351 (6275): 818-819.
[2]	Billio, M., Getmansky, M., Lo, A. W. Econometric measures of connectedness and systemic risk in the finance and insurance sectors [J]. Journal of Financial Economics, 2012, 104 (3): 535-559.
[3]	Jiang, H., Zhang, J. Interconnectedness of banks' tail risk network and its effect on systematic risk: evidence from China's listed banks [J]. Finance & Trade Economics, 2018, 39 (08): 50-65.
[4]	Diebold, F. X., Yilmaz, K. On the network topology of variance decompositions: Measuring the connectedness of financial firms [J]. Journal of Econometrics, 2014, 182 (1): 119-134.
[5]	Li, Z., Tu, X., Bu, L. Systemic risks of financial institutions: importance and vulnerability [J]. Journal of Finance and Economics, 2019, 42 (2): 100-112, 152.
[6]	Hautsch, N., Schaumburg, J., Schienle, M. Financial network systemic risk contributions [J]. Review of Finance, 2015, 19 (2): 685-738.
[7]	Karlhärdle, W., Wang, W., Yu L. TENET Tail-Event driven NETwork risk [J]. Journal of Econometrics, 2016, 192 (2): 499-513.
[8]	Nguyen, L. H., Chevapatrakul, T., Yao, K. Investigating tail-risk dependence in the cryptocurrency markets: A LASSO quantile regression approach [J]. Journal of Empirical Finance, 2020, 58 (3): 333-355.
[9]	Guo, Y., Li, P., Li, A. Tail risk contagion between international financial markets during COVID-19 pandemic [J]. International Review of Financial Analysis, 2021, 73: 101649.
[10]	Javed, F., Sabzevari, H., Virk, N. Tail risk emanating from troubled European banking sectors [J]. Finance Research Letters, 2021: 101952.
[11]	Xu, Y. A Study on the Importance of Chinese financial institutions based on tail risk network [J]. Macroeconomics, 2019, 252 (11): 102-111.
[12]	Li, Z., Lu, Y., Liu, Q. Tail risk network, systemic risk contribution and China’s financial regulation [J]. Economic Perspectives, 2019, (07): 65-79.

Cite This Article

Plain Text BibTeX RIS

APA Style

Hengguo Luo. (2021). Research on the Invulnerability of Chinese Banking System. International Journal of Economics, Finance and Management Sciences, 9(3), 112-118. https://doi.org/10.11648/j.ijefm.20210903.13

Copy | Download

ACS Style

Hengguo Luo. Research on the Invulnerability of Chinese Banking System. Int. J. Econ. Finance Manag. Sci. 2021, 9(3), 112-118. doi: 10.11648/j.ijefm.20210903.13

Copy | Download

AMA Style

Hengguo Luo. Research on the Invulnerability of Chinese Banking System. Int J Econ Finance Manag Sci. 2021;9(3):112-118. doi: 10.11648/j.ijefm.20210903.13

Copy | Download

@article{10.11648/j.ijefm.20210903.13,
  author = {Hengguo Luo},
  title = {Research on the Invulnerability of Chinese Banking System},
  journal = {International Journal of Economics, Finance and Management Sciences},
  volume = {9},
  number = {3},
  pages = {112-118},
  doi = {10.11648/j.ijefm.20210903.13},
  url = {https://doi.org/10.11648/j.ijefm.20210903.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20210903.13},
  abstract = {Based on the stock transaction data of China's listed banks from 2007 to 2020, this paper constructs the complete network of tail risk spillovers among banks using the Least Absolute Shrinkage and Selection Operator (LASSO) quantile regression, and dynamically examines the characteristics of the network topology and the survivability of China's banking system. The results show that the newly listed banks are mainly the risk bearers. The role of a single bank as an isolator, risk bearer and risk disseminator in the network will change over time. City commercial banks have gradually changed from the role of risk bearer to both risk bearer and risk disseminator. The attack experiments on the Bank of China, China Merchants Bank, China CITIC Bank and Zhengzhou Bank those have the largest number of weighted media in the network for the networks of 2016, 2018, 2019 and 2020, show that large-scale cascading failure can occur in the network by changing the parameters. If the attacked bank is a risk communicator, a larger cascading effect may occur, in turn, lead to the Invulnerability of the whole network reduced. In addition, we find that the scale of network cascading failure is related to the type of attacked bank and the characteristics of its adjacent banks: if the neighbor bank is the risk bearer, the risk will not be passed down; If its adjacent banks are risk dispersers, the risks will be further spread and expanded, that is, the scale of cascade failure depends on the cluster structure of the network.},
 year = {2021}
}

Copy | Download

TY  - JOUR
T1  - Research on the Invulnerability of Chinese Banking System
AU  - Hengguo Luo
Y1  - 2021/06/10
PY  - 2021
N1  - https://doi.org/10.11648/j.ijefm.20210903.13
DO  - 10.11648/j.ijefm.20210903.13
T2  - International Journal of Economics, Finance and Management Sciences
JF  - International Journal of Economics, Finance and Management Sciences
JO  - International Journal of Economics, Finance and Management Sciences
SP  - 112
EP  - 118
PB  - Science Publishing Group
SN  - 2326-9561
UR  - https://doi.org/10.11648/j.ijefm.20210903.13
AB  - Based on the stock transaction data of China's listed banks from 2007 to 2020, this paper constructs the complete network of tail risk spillovers among banks using the Least Absolute Shrinkage and Selection Operator (LASSO) quantile regression, and dynamically examines the characteristics of the network topology and the survivability of China's banking system. The results show that the newly listed banks are mainly the risk bearers. The role of a single bank as an isolator, risk bearer and risk disseminator in the network will change over time. City commercial banks have gradually changed from the role of risk bearer to both risk bearer and risk disseminator. The attack experiments on the Bank of China, China Merchants Bank, China CITIC Bank and Zhengzhou Bank those have the largest number of weighted media in the network for the networks of 2016, 2018, 2019 and 2020, show that large-scale cascading failure can occur in the network by changing the parameters. If the attacked bank is a risk communicator, a larger cascading effect may occur, in turn, lead to the Invulnerability of the whole network reduced. In addition, we find that the scale of network cascading failure is related to the type of attacked bank and the characteristics of its adjacent banks: if the neighbor bank is the risk bearer, the risk will not be passed down; If its adjacent banks are risk dispersers, the risks will be further spread and expanded, that is, the scale of cascade failure depends on the cluster structure of the network.
VL  - 9
IS  - 3
ER  -

Copy | Download

Author Information

Hengguo Luo

Business School, China University of Political Science and Law, Beijing, China

Download PDF

Sections

Plain Text BibTeX RIS

APA Style

Hengguo Luo. (2021). Research on the Invulnerability of Chinese Banking System. International Journal of Economics, Finance and Management Sciences, 9(3), 112-118. https://doi.org/10.11648/j.ijefm.20210903.13

Copy | Download

ACS Style

Hengguo Luo. Research on the Invulnerability of Chinese Banking System. Int. J. Econ. Finance Manag. Sci. 2021, 9(3), 112-118. doi: 10.11648/j.ijefm.20210903.13

Copy | Download

AMA Style

Hengguo Luo. Research on the Invulnerability of Chinese Banking System. Int J Econ Finance Manag Sci. 2021;9(3):112-118. doi: 10.11648/j.ijefm.20210903.13

Copy | Download

@article{10.11648/j.ijefm.20210903.13,
  author = {Hengguo Luo},
  title = {Research on the Invulnerability of Chinese Banking System},
  journal = {International Journal of Economics, Finance and Management Sciences},
  volume = {9},
  number = {3},
  pages = {112-118},
  doi = {10.11648/j.ijefm.20210903.13},
  url = {https://doi.org/10.11648/j.ijefm.20210903.13},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20210903.13},
  abstract = {Based on the stock transaction data of China's listed banks from 2007 to 2020, this paper constructs the complete network of tail risk spillovers among banks using the Least Absolute Shrinkage and Selection Operator (LASSO) quantile regression, and dynamically examines the characteristics of the network topology and the survivability of China's banking system. The results show that the newly listed banks are mainly the risk bearers. The role of a single bank as an isolator, risk bearer and risk disseminator in the network will change over time. City commercial banks have gradually changed from the role of risk bearer to both risk bearer and risk disseminator. The attack experiments on the Bank of China, China Merchants Bank, China CITIC Bank and Zhengzhou Bank those have the largest number of weighted media in the network for the networks of 2016, 2018, 2019 and 2020, show that large-scale cascading failure can occur in the network by changing the parameters. If the attacked bank is a risk communicator, a larger cascading effect may occur, in turn, lead to the Invulnerability of the whole network reduced. In addition, we find that the scale of network cascading failure is related to the type of attacked bank and the characteristics of its adjacent banks: if the neighbor bank is the risk bearer, the risk will not be passed down; If its adjacent banks are risk dispersers, the risks will be further spread and expanded, that is, the scale of cascade failure depends on the cluster structure of the network.},
 year = {2021}
}

Copy | Download

TY  - JOUR
T1  - Research on the Invulnerability of Chinese Banking System
AU  - Hengguo Luo
Y1  - 2021/06/10
PY  - 2021
N1  - https://doi.org/10.11648/j.ijefm.20210903.13
DO  - 10.11648/j.ijefm.20210903.13
T2  - International Journal of Economics, Finance and Management Sciences
JF  - International Journal of Economics, Finance and Management Sciences
JO  - International Journal of Economics, Finance and Management Sciences
SP  - 112
EP  - 118
PB  - Science Publishing Group
SN  - 2326-9561
UR  - https://doi.org/10.11648/j.ijefm.20210903.13
AB  - Based on the stock transaction data of China's listed banks from 2007 to 2020, this paper constructs the complete network of tail risk spillovers among banks using the Least Absolute Shrinkage and Selection Operator (LASSO) quantile regression, and dynamically examines the characteristics of the network topology and the survivability of China's banking system. The results show that the newly listed banks are mainly the risk bearers. The role of a single bank as an isolator, risk bearer and risk disseminator in the network will change over time. City commercial banks have gradually changed from the role of risk bearer to both risk bearer and risk disseminator. The attack experiments on the Bank of China, China Merchants Bank, China CITIC Bank and Zhengzhou Bank those have the largest number of weighted media in the network for the networks of 2016, 2018, 2019 and 2020, show that large-scale cascading failure can occur in the network by changing the parameters. If the attacked bank is a risk communicator, a larger cascading effect may occur, in turn, lead to the Invulnerability of the whole network reduced. In addition, we find that the scale of network cascading failure is related to the type of attacked bank and the characteristics of its adjacent banks: if the neighbor bank is the risk bearer, the risk will not be passed down; If its adjacent banks are risk dispersers, the risks will be further spread and expanded, that is, the scale of cascade failure depends on the cluster structure of the network.
VL  - 9
IS  - 3
ER  -

Copy | Download