Critical Value of Bank Network Connectivity and Risk Contagion

Interbank lending is one of the commonest businesses for banks, which helps form a network among banks. The critical value of bank network connectivity, which can lower risk contagion, was deduced in this paper. It was found that the critical value was affected by parameters such as breadth and depth of a crisis, interbank lending ratio, core capital adequacy ratio and return on investment. Simulations based on random network structures show that the critical connectivity deduced is effective in the case of both individual and systemic crises. Meanwhile, the analysis of the effects of all parameters on risk contagion also provide relevant reference for improving the stability of the banking system.