How does risk information dissemination affect risk contagion in the interbank market?

• Published in: PloS one Vol. 17; no. 7; p. e0270482
• Main Authors: Li, Zhinan, Liu, Xiaoyuan
• Format: Journal Article
• Language: English
• Published: San Francisco Public Library of Science 25-07-2022; Public Library of Science (PLoS)
• Subjects: Asymmetry; Balance sheets; Banking industry; Banks; Biology and Life Sciences; Computer and Information Sciences; Computer applications; Credit risk; Data processing; Data security; Decision making; Disclosure; Evaluation; Health risks; Information dissemination; Information management; Information processing; International finance; Medicine and Health Sciences; Methods; Risk; Risk management; Social Sciences; China
• ISSN: 1932-6203; 1932-6203
• DOI: 10.1371/journal.pone.0270482

This paper distinguishes between local and global risk information and disaggregates risk information dissemination in the interbank market based on specified behavioural mechanisms: information disclosure and transmission, information acquisition and decision-making. It then explores the mechanisms whereby such dissemination affects risk contagion in the interbank market and verifies through computational simulations how risk information dissemination, banks’ information acquisition capability, and information disclosure strategies affect risk contagion in the interbank market. The study shows that risk information dissemination markedly increases—and greater bank information acquisition capability reduces—the scope of contagion in the interbank market. Moreover, the greater the tendency of banks is to disclose positive information, the greater the mitigating effect of this information on contagion in the interbank market. In addition, market noise has a positive effect on contagion, while the risk information transmission rate has a U-shaped influence on contagion.