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Journal of Financial Stability Vol. 53 2021

Bank liquidity creation, network contagion and systemic risk: Evidence from Chinese listed banks

Xingmin Zhang1; Qiang Fu2; Liping Lu3; Qingyu Wang2; Shuai Zhang2

1 Southwestern University of Finance and Economics · 2 Chongqing University · 3 Renmin University of China

Abstract

We examine the impact of bank liquidity creation on systemic risk and its heterogeneous impact over the network connectedness. We find that excessive liquidity creation increases the systemic risk with a “U shape” relationship, while internal and external liquidity creation drives systemic risk in a different way. Network connectedness of banks strengthens the relationship between liquidity creation and systemic risk. Our results provide supporting evidence on regulating bank liquidity creation to enhance the financial stability.

DOI
10.1016/j.jfs.2021.100844
Volume
53
Pages
100844
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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