Simulation of interactive contagion between depositors' panic and banking risk

Shuwen Gong and Huiwen Zou

International Journal of Finance & Economics, 2023, vol. 28, issue 1, 392-404

Abstract: Contagion (spread of harmful idea) and control of bank risk have been an eternal topic in the field of financial research. In this paper, we firstly use the savings mechanism to combine the social network of depositors with the network of balance sheets in the banking system to build multiple networks for the banking industry. Secondly, aiming at the heterogeneity of depositors, construct an improved SIS model based on node attitudes to represent the decision‐making process of a bank run during the spread of panic emotions in social networks. Finally, three sets of simulation experiments were designed using a multi‐agent model to analyse the interaction between bank risk contagion and depositor panic contagion under initial asset shocks, the sensitivity of two types of risk contagion, and bank risk contagion under initial rumour shocks. Results show that: (i) The contagion of bank risks and the spread of panic emotions of depositors will affect each other, which will further expand the scope of the spread of bank risk and panic emotions; (ii) depositors in social networks are more likely to be affected by the negative emotions around them; (iii) The key to stabilizing the banking system, while sufficient liquidity can effectively help the banking system resist rumour attacks.

Date: 2023
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