The Stability of Banking System with Shadow Banking on Different Interbank Network Structures

Hongjie Pan, Hong Fan and Marcelo A. Savi

Discrete Dynamics in Nature and Society, 2021, vol. 2021, 1-15

Abstract: With the rapid development of the financial market, the outbreak of systemic risk is affected by many factors, among which shadow banking is considered to be the essential reason to cause financial crisis and destroy the stability of the banking system. In view of the stability of the banking system, considering shadow banking, interbank lending, and complex relationships between banks, a dynamic complex interbank network model with shadow banking under different network structures is proposed. Based on the model, the effects of ROI, investment periods, average deposit, deposit interest rate, the density of shadow banks, and asset loss are studied quantitatively, and the sensitivity and difference of the banking system with shadow banking under different interbank networks are compared and analyzed. The findings indicate that the spread of systemic risks between banks is closely related to the interbank network structures. With the relatively concentrated interbank network structure, it is easier to increase the probability and degree of risk contagion. Under the random, small-world, and scale-free networks, the random network has the strongest ability to resist and absorb risks, while the small-world network is the weakest. However, once the banking network suffers a big shock, excessive risk will directly break through the protection of the banking network, detonate the systematic risk, and destroy the stability of the banking system with shadow banking. This study contributes to a future empirical research agenda on the topic. Moreover, it gives a reference for policymakers and regulatory authorities to prevent systemic risk introduced by shadow banking.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:hin:jnddns:6650327

DOI: 10.1155/2021/6650327

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