Interconnectedness of Banks' Tail Risk Network and Its Effect on Systematic Risk: Evidence from China's Listed Banks
- JIANG Hai，ZHANG Jinyi
- Ji'nan University，510632。
After China's economy entered a new normal, concerns about the systemic risk of Chinese financial system became increasingly prominent as the downward pressure on the economy intensified. Therefore，how to effectively guard against systemic financial risk has become a meaningful and urgent research topic. In this paper, we investigate the interconnectedness of Chinese banks' tail risk network and its effect on systematic risk under the new normal of China's economy. We employ quantile regression and LASSO algorithm on a real-time data of 16 listed Banks and macro state variables from August 19，2010 to March 31, 2017. Our empirical study results suggest that the tail risk network of Chinese banks has obvious time-varying characteristics in the post-crisis era. The interconnectedness will significantly increase during the process of risk accumulation and crisis. Large state-owned banks have a central position in the banking network and have a strong tail risk spillover effect. Additionally，our panel regression analysis results reveal that the high level of tail risk spillover among all banks will lead to an increase in the systemic risk. The banks with larger out-degree centrality tend to reduce the systemic risk contribution but increase other banks' systemic risk.
- Tail Risk Spillover, Network Interconnectedness, Systemic Risk