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Peer effects of bank loan portfolio on systemic insolvency risk: evidence from China

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Listed:
  • Chengyuan Wang
  • Qiong Wang
  • Shanshan Zheng
  • Liang Wan
  • Jun Li
  • Jia’Ning Zang

Abstract

By empirically analysing the panel data of Chinese commercial banks, we find that regional city commercial banks significantly mimic their peers in multiple lending parts of loan portfolio, while large nationwide commercial banks behave oppositely to their peers. In addition, by using a Euclidean distance way to measure bank interconnectedness, we reveal that the overlap of loan portfolios between banks is significantly correlated to the similarity of insolvency risk between them. It implies that peer effects of bank loan portfolio are likely to be sources of systemic insolvency risk in the bank system. These results help deepen the understanding of peer effects of bank activities, and provide insights into the correlation between peer effects and systemic risk in banks.

Suggested Citation

  • Chengyuan Wang & Qiong Wang & Shanshan Zheng & Liang Wan & Jun Li & Jia’Ning Zang, 2021. "Peer effects of bank loan portfolio on systemic insolvency risk: evidence from China," Applied Economics, Taylor & Francis Journals, vol. 53(30), pages 3457-3473, June.
    • Handle: RePEc:taf:applec:v:53:y:2021:i:30:p:3457-3473
    DOI: 10.1080/00036846.2021.1883527
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