AUTHOR=Gao Qianqian , Lv Dayong , Jin Xiaomei TITLE=Systemic risk of multi-layer financial network system under macroeconomic fluctuations JOURNAL=Frontiers in Physics VOLUME=10 YEAR=2022 URL=https://www.frontiersin.org/journals/physics/articles/10.3389/fphy.2022.943520 DOI=10.3389/fphy.2022.943520 ISSN=2296-424X ABSTRACT=

As the global economy continues to integrate, COVID-19 is affecting businesses around the world, causing the financial system to become more complicated. The complicated relationship between various agents in the financial system makes potential hazards more easily transmitted. Most studies of systemic risks have focused on single-layer networks, and macroeconomic fluctuations have not been quantified in multi-layer models of financial networks. In this paper, three different macroeconomic shock scenarios (showing upward, downward, and random trends) are constructed to affect the firm’s business activities, and a multi-layer financial network model is developed to simulate systemic risk under macroeconomic fluctuations. Firms with medium and high leverage and small asset sizes, as well as banks with smaller asset sizes and fewer bank-firm credit linkages, are found to be more likely to default. The study also found that average firm leverage exhibits two inflection points, causing banks’ default probabilities to “rise, then fall, and then rise,” with the inflection point value being the lowest under the upward trend of macroeconomics. In addition, the higher the ratio of firm loans to total bank assets, the more likely the bank is to default. Appropriate loan maturity extension has also helped to reduce systemic risk, especially in light of the macroeconomic downward trend. Furthermore, improving the capital adequacy ratio can reduce the bank’s default probability under macroeconomic fluctuations.