Measuring Contagion Risk on Banking system in the Digital Finance Era
musdholifah;ulil hartono; yulita wulandari
universitas negeri surabaya
Abstract
As an institution that plays an important role in the economic system, especially in the flow of payments, banks have various risk exposures inherent in it. This condition is also supported by the digitization of banking services, so that banks are connected to one another. Inter-bank interaction will cause interbank risk exposure to be higher through the interbank market, so that contagion risk and the opportunity for systemic risks between banks will also be higher if a bank experiences a default. This study aims to determine the effect of contagion on banks in Indonesia. The sample selection criteria in this study are conventional banks that provide annual reports from 2007 to 2016, thus obtaining 18 banks as research samples. The measurement of contagion effect is done by using the financial contagion risk index and tested using the Vector Autoregression method. The results showed that there was a one-way causality pattern between banks in the study sample including BCA with Bank Mayapada, Maybank Bank, Bank Mega, and Bank Resona Perdania, then Bank CIMB Niaga with BCA, BRI, BNI, BTN, Commonwealth Bank, J-Trust Bank, KEB Hana Bank, Mega Bank and Permata Bank. While two-way causality occurs between Bank BCA and Bank Mandiri and vice versa. In addition, the impact of risk pressure from a bank is not always positive, but in some case, it is also negative, which means that the bank can actually take advantage of the shock conditions experienced by other banks.
Keywords: contagion, systemic risk, interbank market, banking institution, shock
Topic: International Conference of Islamic Economic and Financial Inclusion