Risk Contagion of Bank-firm Credit Network: Evidence from China

Abstract

In order to explore the effect of China’s listed companies’ credit on banking system risks, this research employs the network topology method to build a bank–firm credit network of loans between banks and those listed companies and examines the dynamic topology of these network risks to the banking system. The results show that the credit network has a hierarchical core–margin structure, whereby Bank of China and China Merchants Bank are respectively key pivots for state-owned banks and stock-holding banks to control the contagion in the network. The decentralized structure of banks’ credit network effectively reduces risk to the banking system. Moreover, the average path length, network connectivity ratio, betweenness centrality, and degree of correlation in the credit network distinctly affect the banking system’s risk, thus making these characteristics suitable targets for the regulation and monitoring of such risk.

Keywords: Complex network, Bank–firm credit; Systemic risks; Risk management; China

JEL Classification: G01, F15, G15, L14