Title: Default contagion \& systemic risk in the intercorporate loan guarantee network
Authors: Wenwei Li - EBS Universitaet fuer Wirtschaft und Recht (Germany) [presenting]
Shenglin Ben - Zhejiang University (China)
Ulrich Hommel - EBS Universitaet fuer Wirtschaft und Recht (Germany)
Sandra Paterlini - European Business School Germany (Germany)
Jiefang Yu - Zhejiang University (China)
Abstract: A one-mode network is proposed to model the intercorporate loan guarantee activities in China and test it with the field research data from Zhejiang Province. By stress testing the network, we also reveal the shock transmission mechanism and loss contagion process within the loan guarantee market. The empirical results show that the topology of the presented network is close to a scale-free structure, which is robust against accidental failures but vulnerable to coordinated attacks. The simulation analysis further highlights some important findings. First, the rising level of corporate debt (including private lending) will weaken sample companies capabilities to absorb losses from the contingent guarantee liabilities, in turn leading to a larger scale of domino effect. Second, the continuous credit support from financial institutions during crisis will significantly increase the survival rate of the sample companies, and reduce the losses from default contagion.