Cross-border capital flows and China’s banking systemic risk: Cross-contagion effects based on the time-varying net spillover index

We use the SV-TVP-SVAR-DY model to construct a cross-border capital flow index based on the time-varying net spillover index, analyzing the cross-contagion effects between countries through network topology. Combined with China's banking systemic risk measured by the SCCA model, we explore how cross-border capital flows impact China's banking risk. Our findings show that cross-border capital flows affect China's banking risk via monetary policy fluctuations, shadow banking arbitrage, stock market linkages, and financial system fragility. While the impact decreased after 2017, it surged again from late 2021, peaking in 2024. We also observe that developed countries generally exhibit stronger To-Spillover effects and weaker From-Spillover effects, whereas the opposite is true for developing countries. Notably, the scale of capital flows does not solely determine spillover effects; some emerging markets show strong To-Spillover despite smaller flows. Global crises amplify cross-contagion effects, while more stable periods see weaker co-movements in capital flows.