The Effect of Shadow Banking on the Systemic Risk in a Dynamic Complex Interbank Network System

Hong Fan,Hongjie Pan

doi:10.1155/2020/3951892

Abstract

After the financial crisis triggered by the subprime mortgage crisis in the United States in 2008, many scholars believed that the unstable transmission of shadow banking business in the banking system is the main factor causing financial turmoil. This paper proposes a dynamic complex interbank network system model with shadow banking in which the dynamic complex interbank network system differs from the traditional banking network and is formed by the interrelated business between shadow banks and commercial banks to explore the effect of shadow banking on the systemic risk. The results show that the existence of shadow banking will increase the systemic risk, accelerate the speed of bankruptcy of banks, reduce the survival ratio of banks, and increase the strength of central bank assistance. The smaller the number of shadow banks in the system, the higher the degree of credit connection among commercial banks and the smaller the systemic risk.

Highlights

E existing studies mainly analyzed the systemic risk caused by the crisis from the perspective of the interbank
According to Financial Stability Board (FSB) [22], the shadow banking system is a credit intermediary system which is free from the formal banking system and may cause systemic financial risks and regulatory arbitrage risks. e FSB sets out several classes of shadow banking sectors: (i) sectors susceptible to runs, such as certain mutual funds, credit hedge funds, and real-estate funds; (ii) nonbank lenders dependent on short-term funding, such as finance companies, leasing companies, factoring companies, and consumer-credit companies; (iii) market intermediaries dependent on short-term funding or on the secured funding of client assets, such as broker dealers; (iv) companies facilitating credit creation, such as credit insurance companies, financial guarantors, and monoline insurers; and (v) securitization-based intermediaries
The above research concerning the impact of shadow banking on the systemic risk examines the relationship between shadow banking and the systemic risk, it does not reveal the mechanism of systemic risk well, as they neglected the complicated interactions among banks

Summary

Hong Fan and Hongjie Pan

Glorious Sun School of Business and Management, Donghua University, Shanghai 200051, China. E smaller the number of shadow banks in the system, the higher the degree of credit connection among commercial banks and the smaller the systemic risk. Berardi and Tedeschi [20] showed that the banking network presents a centralized structure and the increase in the number of attractive banks will reduce the systemic risk. Erefore, the study of the impact of shadow banking on the systemic risk should be integrated with the interbank network system. E balance sheet of banks in the interbank network system with shadow banking is evolved same as b􏽐sehqodkaur dra1ootbiwwoit|−Nsn1b,f(ka1r|Mon);mk,hoiicnwoademtivctmeairmtie,nirefcgbitaat−lnhb1kea.ibntiitoks|−Nt1aa,kkls|hMabanod>dro0rwboitiw|−bfN1ai,snknh|Mgka,d

Shadow bank Nl

Cij Sij

No another debt bank

No shadow banking

Findings

The amount of central bank assistance