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Local government debt and commercial bank liquidity creation

Author

Listed:
  • He, Zhimin
  • Chen, Weiye
  • Chen, Minghui
  • He, Shuping

Abstract

The concentration of local government debt in commercial banks raises the risk of broader financial issues. Analyzing data from Chinese commercial banks between 2011 and 2022, we find that local government debt reduces liquidity creation by increasing liquidity risk and non-performing loans. This negative effect is more significant in banks with less green credit and those in smaller cities.

Suggested Citation

  • He, Zhimin & Chen, Weiye & Chen, Minghui & He, Shuping, 2025. "Local government debt and commercial bank liquidity creation," Finance Research Letters, Elsevier, vol. 80(C).
    • Handle: RePEc:eee:finlet:v:80:y:2025:i:c:s154461232500580x
    DOI: 10.1016/j.frl.2025.107317
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    References listed on IDEAS

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