Systemic risk in Chinese interbank lending networks: insights from short-term and long-term lending data

Shuyue Jin, Lei Song, Lei Shu, Qifeng Gao and Yu Chen ()
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Shuyue Jin: University of Science and Technology of China
Lei Song: University of Science and Technology of China
Lei Shu: University of Science and Technology of China
Qifeng Gao: Digital China Information Service Company Ltd., Jiulong Mountain
Yu Chen: University of Science and Technology of China

Empirical Economics, 2024, vol. 67, issue 6, No 4, 2539-2564

Abstract: Abstract Since the financial crisis, financial networks, such as interbank lending networks, have been highly concerned by regulators in terms of their vulnerability. To study the risk contagion power of financial networks deeply, this paper integrates short-term and long-term lending data among commercial banks and stress tests the Chinese interbank lending network by using the extended distress and default contagion model. The results show that the reconstructed short-term lending network utilizing information on bank assets exhibits a core–periphery structure with systemically important banks at its core. Stress test results suggest that an interbank lending network that does not consider long-term lending data underestimates the network’s systemic risk when market conditions are poor. In addition, we find that the Chinese interbank lending network has gradually become more risk-resistant over time, and the vulnerability of the network after the outbreak of COVID-19 is lower than that before. Finally, we suggest that regulators can make full use of ancillary data, such as long-term interbank lending data, to stress test financial networks, thereby accurately capturing the network’s structure and preparing for ex-ante interventions before a crisis strikes to mitigate network systemic risk.

Keywords: Interbank lending network; Short-term data; Long-term data; Default contagion; Systemic risk (search for similar items in EconPapers)
JEL-codes: G01 G21 G33 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s00181-024-02617-9

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