Dynamic evolution of bank risk management decision based on credit risk contagion

CHEN Tingqiang, SHEN Jiaxian, WANG Lei, LI Jianping

Systems Engineering - Theory & Practice ›› 2023, Vol. 43 ›› Issue (12) : 3461-3487.

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Systems Engineering - Theory & Practice ›› 2023, Vol. 43 ›› Issue (12) : 3461-3487. DOI: 10.12011/SETP2022-2539

Dynamic evolution of bank risk management decision based on credit risk contagion

  • CHEN Tingqiang1,2, SHEN Jiaxian1, WANG Lei1, LI Jianping2
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Abstract

Credit risk contagion has always been a concern of academic circles. The bank's credit risk management decision is a key link to deal with the credit risk contagion, and the cost is a key factor affecting the bank's risk management decision. In view of this, this paper considers the cost constraint of credit risk management, constructs a common dynamic evolution model of credit risk contagion and bank credit risk management decision under different bank credit risk management strategies. We systematically analyzed the influencing factors, strategic stability and evolution characteristics of bank credit risk management under credit risk contagion, and explore the optimal strategy selection of bank credit risk management under different conditions. The results show that: 1) The emphasis on bank credit risk management, the willingness to pay for bank credit risk management costs, the upper limit of credit risk management level, and banks' credit risk management ability all have a positive impact on the effect of bank credit risk management; 2) The two credit risk management strategies of bank independence from credit default and adjustment according to credit default can both play the role of credit risk control, but the effect difference is significant, and the optimal strategy selection of bank credit risk management is quite different; 3) When the speed of credit risk transmission changes dynamically, its initial speed, target speed and the degree of inhibition of bank risk management all have an impact on the evolution characteristics of credit risk transmission, and target credit risk transmission speed has a significant impact on the optimal selection of bank credit risk management strategy. In this paper, the evolution of bank credit risk management strategy and its optimal strategy selection under credit risk contagion are systematically studied, which has certain reference value for improving the credit risk management level and ability of Chinese banks.

Key words

credit risk contagion / management cost / optimal strategy / risk control / dynamic evolution

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CHEN Tingqiang , SHEN Jiaxian , WANG Lei , LI Jianping. Dynamic evolution of bank risk management decision based on credit risk contagion. Systems Engineering - Theory & Practice, 2023, 43(12): 3461-3487 https://doi.org/10.12011/SETP2022-2539

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Funding

Major Program of National Social Science Foundation of China (22&ZD122); National Natural Science Foundation of China (71871115); Humanities and Social Sciences Research Project of Ministry of Education of China (22YJC790128); General Program of Social Science Foundation of Jiangsu Province of China (22GLB032)
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