Study on the Risk Transmission Mechanism of Rural Banks in China

Abstract

This paper studies the rural banks’ credit risk factors and risk transmission path, sets up a nonlinear differential dynamical system model for the transmission and analyzes its equilibrium by phase-plane method, then discusses how credit risk dynamically configures to reach equilibrium among the nodes in the transmission process. The paper’s main conclusions are as follows: the sources of rural banks’ credit risk are transmitted inside the banks by virtue of the carriers of capital flow and information flow, and the recipients in the banks’ internal credit risk transmission may become new risk sources and lead to regional financial risks; the credit risk dynamic configuration may reach equilibrium among the nodes in the transmission subsystem. Finally, this paper gives suggestions on credit risk management of rural banks in China.