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Fintech, Macroprudential Supervision and Systematic Risk in China’s Banks

Author

Listed:
  • Wang Daoping
  • Xu Yuxuan
  • Liu Linlin

    (School of Finance, Nankai University, Beijing, China)

  • Liu Yangjingzhuo

    (School of Economics, Peking University, Beijing, China)

Abstract

In recent years, the rapid development of fintech has brought far-reaching changes to the financial sector. At the same time, fintech may cause potential systemic risk in the financial sector, which has aroused special concerns from financial regulatory authorities. Based on the micro data of China’s listed banks from 2013 to 2020, this paper analyzes the impact of fintech development on systemic risk in China’s banking industry and its mechanism. It reveals that for a micro bank, fintech progress increases its risk-taking and enhances inter-bank linkages, which results in significantly amplified systemic risk, and the impact is time-lagged and persistent. In addition, the heterogeneity analysis shows that the impacts of fintech on state-owned banks and other banks are heterogeneous and the margining risk of state-owned banks is lower when the fintech improves. It is also found that enhancing macroprudential supervision can reduce the systemic risk spillover of fintech. Robustness analyses including GMM regression and the method of instrumental variables prove that the conclusion is robust. This paper is of theoretical and policy significance for the prevention of systemic risk in the banking industry as China develops fintech.

Suggested Citation

  • Wang Daoping & Xu Yuxuan & Liu Linlin & Liu Yangjingzhuo, 2022. "Fintech, Macroprudential Supervision and Systematic Risk in China’s Banks," China Finance and Economic Review, De Gruyter, vol. 11(4), pages 110-129, December.
    • Handle: RePEc:bpj:cferev:v:11:y:2022:i:4:p:110-129:n:5
    DOI: 10.1515/cfer-2022-0025
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