Transfer entropy, multidimensional multiple correlation network, and risk contagion of bank capital shortage

Abstract

This paper examines the reshaping of systemic risk in China’s bank‑dominated financial system amid intensifying competitive homogeneity, expanding business scale, and adjustments to macro deleveraging and transition policies. Methodologically, we develop a unified measurement–network–identification framework: we employ the Relative Systemic Risk Index (SRISK) to quantify institutions’ systemic contributions, balancing robustness and interpretability across leverage, size, and interconnectedness; we construct a multilayer contagion network via a threshold approach that integrates three principal channels—interbank lending, real estate, and equity markets; and we employ Spatial Durbin panel models to separate direct effects from network spillovers and to validate transmission pathways. Results show that the expansion of off‑balance‑sheet activities, interbank shadow credit, and on‑balance‑sheet regulatory arbitrage raises interbank leverage and amplifies contagion. The constructed network exhibits scale‑free and small‑world properties, being robust to random shocks yet vulnerable to shocks targeting central nodes, with rapid diffusion. Direct effects indicate that multiple‑network centrality, capital adequacy, investor sentiment, broad money growth, and foreign‑exchange deposit growth increase capital shortfall risk, while interest income, loan‑to‑deposit structure, nonperforming loan ratio, and foreign‑exchange loan growth mitigate it. Policy implications support strengthening the dual‑pillar macroprudential framework and introducing time‑varying contagion damping over the financial cycle.