Effect of the Dynamic Macroeconomic Fluctuation on the Stability of a Banking Network System with Scale-Free Structure

Abstract

The stability of banking system has caused wide concerns since the global financial crisis. The present paper focuses on studying the stability of a banking network system in the case that the banking network system suffers the dynamic macroeconomic fluctuation shocks. We firstly construct a banking network system with a scale-free structure, then let the banking network system suffer the dynamic macroeconomic fluctuation (here, we consider three kinds of situations; the macro economy fluctuates in downward, upward, and random trends, respectively). Then, we study the stability of the banking network system under each situation. Firstly, the results show that the scale-free topology has an important effect on the stability of the banking network system at each macroeconomic fluctuation situation. Secondly, the investment payback period and the ratio of investment to deposit have a large effect on the stability of the banking network system in the cases of dynamic macroeconomic fluctuation. In addition, our further studies find that there is an optimal ratio of the investment to deposit under various macroeconomic fluctuation scenarios, which divides the banking system into stable and unstable regions. Finally, we discuss the regulation strategies for banks, which may provide decision supports for the relevant regulatory authority.