Systemic Risk in the Chinese Banking Sector

45 Pages Posted: 27 Jan 2021

See all articles by Eugene Nivorozhkin

Eugene Nivorozhkin

University College London

Ilias Chondrogiannis

University College London - School of Slavonic and East European Studies

Date Written: December 6, 2020

Abstract

We examine the evolution and factors of systemic risk in the Chinese banking sector over the last decade from the perspective of international investors. We apply the SRISK measure of systemic risk to a representative sample of listed Chinese institutions that captures 50-60% of total banking assets and utilize the Granger-causality network-based approach to demonstrate interlinkages among Chinese banks beyond the largest financial institutions. Firstly, we show a dramatic increase in systemic risk after 2011 and the increased contribution of small- and medium-sized banks. Then, we identify causality relationships from housing prices, economic policy uncertainty and shadow banking towards systemic risk and causality from shadow banking to housing prices. According to our results, international concerns about the stability of the Chinese banking system are well justified and a systemic event with international impact could be caused by distress in a Chinese financial institution outside of the group of the largest banks.

Keywords: Systemic Risk, Chinese Banking sector, Interconnectedness, Economic Policy Uncertainty, Shadow Banking

JEL Classification: G01, G18, G21, E50

Suggested Citation

Nivorozhkin, Eugene and Chondrogiannis, Ilias, Systemic Risk in the Chinese Banking Sector (December 6, 2020). Available at SSRN: https://ssrn.com/abstract=3743763 or http://dx.doi.org/10.2139/ssrn.3743763

Eugene Nivorozhkin

University College London

Gower Street
London, WC1E 6BT
United Kingdom

Ilias Chondrogiannis (Contact Author)

University College London - School of Slavonic and East European Studies ( email )

Malet Street
London WC1E 7HU
United Kingdom

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