TIAN Jiao, WANG Qing：Bank Capital Constraints, Risk Spillover and Systematic Financial Risk

Abstract：This paper measures spillover risks of banking industry with CoVaR Method and macro financial risks with Contingent Claims Analysis Method with Chinese data from 2005 to 2013. Then a Simultaneous Equations Model, which contains variables such as capital adequacy ratio, individual credit risk, spillover risks of banking industry, and macro financial risks, is estimated. This study finds that:(1)there are four kinds of banks in view of individual spillover risk effect on systematic risk, which provides classification criterion for differential regulation;(2)individual risk which reflect banks' risk-taking behavior and systematic risk which reflect risk-shifting behavior can substitute each other, and this can reveal that capital regulation policy cannot balance the target of micro and macro prudence;(3) Macro financial risk has its speedup feedback effect on systemic risk, while the self-interested behavior of individual banks with capital constraint could partially absorb the feedback risk. This paper analyzes the transfer mechanism of financial risk from the channel of capital supervision, which provides theoretical support and empirical evidence for preventing systematic financial risk.

Key words： Capital Constraints    Risk Spillover    Systemic Financial Risk    CCA    CoVaR

source:Finance & Trade Economics ,No.8,2015