Identifying Systemically Important Banks Based on an Improved DebtRank Model

Hu Wang () and Shouwei Li
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Hu Wang: Yangzhou University
Shouwei Li: Southeast University

Computational Economics, 2023, vol. 62, issue 4, No 6, 1505-1523

Abstract: Abstract Considering two risk contagion channels, namely interbank lending and common asset holdings, we introduce the bank's default probability into the DebtRank model to construct an improved one and measured the bank’s systemic risk using the data of China's banking industry from 2016 to 2018. The research results indicate that the bank’s systemic risk from two risk contagion channels is significantly greater than the sum of risks from every single channel. The original DebtRank that takes only a single risk contagion channel into account will underestimate the bank’s systemic risk. In addition, state-owned commercial banks and joint-stock commercial banks are the risk centers of China's banking system, whose systemic importance changes dynamically. Furthermore, the ranking of the TLAC gaps show correlation with the ranking of the DebtRanks of Chinese G-SIBs. The results of this paper will provide a new way and a theoretical basis for identifying systemically important banks and strengthening the supervision of the banking system.

Keywords: Default probability; DebtRank; Systemically important bank; Bank networks (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10614-022-10309-8

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