REPUTATION RISK CONTAGION AND CONTROL OF RURAL BANKS IN CHINA BASED ON EPIDEMIC MODEL

Wu Yu

School of Economics Henan University of Science and Technology, Luoyang City, Henan Province, China, 471000

Rural bank reputation risk is the negative evaluation formed in stakeholders’ minds as a result of events which pose both internal and external risks. Regardless of whether or not these risk events have actually occurred, any resulting negative evaluations tend to propagate and accumulate in both the public’s mind and within the main financial system. The growing negative opinion can create a herd effect, ultimately creating a reputation crisis. This paper attempts to research the contagion mechanism of rural bank reputation risk based on epidemic model, then explores a simulation study under different situations. The results show that the key to prevent or regulate reputation risk contagion is to reduce the unit available contact rate and the re-entry ratio, as well as the lurker infected rate. Finally, this paper puts forward management and control strategies from the perspective of the entire process. These strategies specifically focus on constructing an early warning mechanism, a dissolving mechanism and a long-term mechanism.