As China's capital market evolves toward a multi-tiered structure, the internal interconnectedness of the financial system has continued to strengthen. Financial innovation has accelerated market development but has also increased the potential for systemic financial risk. This paper investigates how the interconnectedness of financial institutions affects financial systemic risk in China. Using balance-sheet and stock-market trading data on 32 listed Chinese financial institutions in the banking, securities, and insurance industries from October 2010 to December 2022, the study measures systemic risk with the ΔCoVaR indicator, captures interconnectedness through the pairwise similarity of mark-to-market asset portfolios, and constructs moderating variables for high asset concentration (HHI-based) and large external shocks. Panel fixed-effects regressions reveal a dual role of interconnectedness. On the one hand, it has a risk-contagion effect: higher interconnectedness significantly raises systemic risk. On the other hand, it has a risk-sharing effect: under high asset concentration or large external shocks, interconnectedness lowers systemic risk by reducing the shock borne by individual institutions. Heterogeneity analysis shows that both effects are stronger for large institutions than for small ones, and stronger in banking than in insurance and securities. The findings offer guidance for regulators seeking to balance the robustness and fragility of financial networks in macro-prudential policy design.

Nomin Lkhagvasuren, Jiawen Xu. The Influence of Financial Institutions’ Interconnectedness on Financial Systemic Risk: Evidence from Listed Chinese Financial Institutions. Academic Journal of Business & Management (2026), Vol. 8, Issue 10: 6-13. https://doi.org/10.25236/AJBM.2026.081002.

[1] Zhang S. Building a firm line of defense against systemic financial risk to accelerate the construction of a financially strong country[J]. Agricultural Development and Finance, 2024(2): 86-88.

[2] Lin D, Li Y. Measuring the interconnectedness of listed Chinese financial institutions and analyzing its determinants[J]. Statistical Research, 2019, 36(4): 50-59.

[3] Acemoglu D, Ozdaglar A, Tahbaz-Salehi A. Systemic risk and stability in financial networks[J]. American Economic Review, 2015, 105(2): 564-608.

[4] Cheng X, Wu J, Liao S. A study of contagion in the financial system from the perspective of network analytics[J]. Neurocomputing, 2017, 264: 42-49.

[5] Ding D, Han L, Yin L. Systemic risk and dynamics of contagion: A duplex inter-bank network[J]. Quantitative Finance, 2017, 17(9): 1435-1445.

[6] Iyer R, Peydró J L. Interbank contagion at work: Evidence from a natural experiment[J]. Review of Financial Studies, 2011, 24(4): 1337-1377.

[7] Cai J, Eidam F, Saunders A, et al. Syndication, interconnectedness, and systemic risk[J]. Journal of Financial Stability, 2018, 34: 105-120.

[8] Baur D G, Lucey B M. Is gold a hedge or a safe haven? An analysis of stocks, bonds and gold[J]. Financial Review, 2010, 45(2): 217-229.

[9] Ye W, Luo K, Liu X. Time-varying quantile association regression model with applications to financial contagion and VaR[J]. European Journal of Operational Research, 2017, 256(3): 1015-1028.

[10] Gong M, Song T. Research on methods for identifying systemic risk[J]. Studies of International Finance, 2010(5): 90-96.

[11] Acharya V V, Pedersen L H, Philippon T, et al. Measuring systemic risk[J]. Review of Financial Studies, 2017, 30(1): 2-47.

[12] Adrian T, Brunnermeier M K. CoVaR[J]. American Economic Review, 2016, 106(7): 1705-1741.

[13] Acharya V V, Engle R, Richardson M. Capital shortfall: A new approach to ranking and regulating systemic risks[J]. American Economic Review, 2012, 102(3): 59-64.

[14] Brownlees C T, Engle R F. SRISK: A conditional capital shortfall measure of systemic risk[J]. Review of Financial Studies, 2017, 30(1): 48-79.

[15] Tao L, Zhu Y. Monitoring and measuring systemic financial risk: A study based on China’s financial system[J]. Journal of Financial Research, 2016(6): 18-36.

[16] Sui C, Tan Z, Wang Z. A network-based method for measuring banking systemic risk[J]. Chinese Journal of Management Science, 2016(5).

[17] Fan X, Wang D, Fang Y. Measuring and supervising financial institutions’ systemic risk contributions in China: Marginal risk contribution and leverage[J]. Nankai Economic Studies, 2011(4).

[18] Jiang H, Zhang J. Tail-risk network interconnectedness of commercial banks and systemic risk: Evidence from Chinese listed banks[J]. Finance & Trade Economics, 2018(8).

[19] Zhang H, Shi C, Jin H, et al. Measuring and early-warning models of systemic financial risk: A survey[J]. Modern Management Science, 2019(9).

[20] Hué S, Lucotte Y, Tokpavi S. Measuring network systemic risk contributions: A leave-one-out approach[J]. Journal of Economic Dynamics and Control, 2019, 100: 86-114.

[21] Li Z, Liang Q, Fang Y. Monitoring and early warning of cross-sector systemic risk spillovers in China based on downside and upside ΔCoES[J]. Journal of Financial Research, 2019(2).

[22] Li Z, Zhu M, Li Y, et al. Systemic risk spillovers of Chinese financial institutions: Measurement, channels, and prevention[J]. Journal of Financial Research, 2023(4): 55-73.

[23] Tang S. Study on the influence of financial institutions’ correlation on financial systemic risk[D]. Shanghai: University of Shanghai for Science and Technology, 2024.

[24] Fang Y, Liu J. Bank interconnectedness and systemic financial risk: Contagion or sharing?[J]. Journal of Financial Research, 2023(6): 57-74.

[25] Wang G, Xu Z, Xie C. Interconnectedness and systemic risk contributions of Chinese financial institutions: A tail-risk spillover network perspective[J]. Journal of Management Sciences in China, 2022, 25(5): 109-126.

[26] Ouyang Z, Zhou X. Backtesting and interconnectedness of systemic risk of Chinese financial institutions: Evidence from MES and ΔCoVaR[J]. Chinese Journal of Management Science, 2021 (online first).

[27] Li J, Fang Y, Jing Z. Measuring banking systemic risk in Belt and Road partner countries[J]. Journal of Hohai University (Philosophy and Social Sciences), 2024, 26(1): 104-117.

[28] Benoit S, Colliard J E, Hurlin C, et al. Where the risks lie: A survey on systemic risk[J]. Review of Finance, 2017, 21(1): 109-152.