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Contagion Risk in the Interbank Market in China and the US
Fei Ziwei 1,Jiang Xiaoquan 2,Zeng Li 3,Peng Jiangang 1 * #
1.College of Finance and statistics, Hunan University, 410079
2.Department of Finance, Florida International University, 33199
3. College of Finance and statistics, Hunan University, 410079
*Correspondence author
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Funding: The study was supported by the National Natural Science Foundation of China （No.No.71073048 and No. 71373071)）
Opened online:14 January 2014
Accepted by: none
Citation: Fei Ziwei,Jiang Xiaoquan,Zeng Li.Contagion Risk in the Interbank Market in China and the US[OL]. [14 January 2014] http://en.paper.edu.cn/en_releasepaper/content/4580381
 
 
In this paper, we investigate the contagion risk in the interbank market between China and the United States. We adopt the adjusted formula of the capital adequacy ratio proposed in Basel III as the criterion of contagion. Our simulation results show that the contagion risk of individual US banks in this market when they experience a single shock is relatively higher than that of China; however, when they encounter a larger shock by a specific group of banks, they perform better. A comparison of the two countries shows that higher financial system development does not necessarily indicate a higher risk of contagion in the interbank market. Government oversight of the financial system can facilitate the ability of banks to resist contagion risk in the interbank market.
Keywords:Contagion risk; Interbank market; Commercial bank; Capital adequacy ratio; Basel III
 
 
 

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