Abstract：The subprime mortgage crisis in the United States shows that CDS significantly impacts banking systemic risk, but the mechanism of how CDS affects banking systemic risk is still unclear. This paper first constructs a dynamic multi-layer banking network model with CDS interactions to study the dual impact of CDS on the banking system in both volatile and stable economic environments. The results show that when the economy is stable, CDS has a positive absorption effect, which successfully transfers the risk and reduces the banking systemic risk; When the economy is volatile, the excess risk assets released by banks due to CDS are transformed into new systemic risk; the size of CDS is negatively correlated with the banking systemic risk and there is a critical value of size.
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