Network topography and default contagion in China's financial system

Jens Fittje and Helmut Wagner

VfS Annual Conference 2020 (Virtual Conference): Gender Economics from Verein für Socialpolitik / German Economic Association

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.

Keywords: Interbank Network; Financial Contagion; China's interbank market; Financial market stability; Complex networks; Network topography (search for similar items in EconPapers)
JEL-codes: E44 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-ban, nep-cna, nep-mac, nep-net and nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc20:224605

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