Risk contagion of bank-firm loan network: evidence from China

Starting from Chinese A-listed firms’ loan announcements, this research creatively constructs a dynamic, variant-linkage, and more comprehensive banking network in China during 2007 and 2016. Exploiting techniques from the literature on complex networks, we find that China’s banking network exhibits more clustering, more coherence, higher centrality, and even more heterogeneity. Empirical results show that the above network features, especially the heterogeneity of the network, have a great impact on financial systemic risk. A network with higher clustering coefficient, higher coherence, lower centrality, and greater heterogeneity is associated with a lower financial systemic risk. A range of policy measures can be drawn from our results, including macro-prudential policy, increasing network stability, and applying surcharges for systemically important financial institutions so as to minimize financial systemic risk.