IDEAS home Printed from https://ideas.repec.org/p/toh/dssraa/145.html
   My bibliography  Save this paper

Generative AI: The Transformative Impact of ChatGPT on Systemic Financial Risk in Chinese Banks

Author

Listed:
  • Yikai Zhao
  • Runyu Dai
  • Jun Nagayasu

Abstract

We investigate the impact of ChatGPT, a generative AI (GenAI) application, on the systemic financial risk of Chinese banks. Using a sample of 42 publicly traded banks and employing regression discontinuity and regression discontinuity difference-in-differences methodologies, we assess the immediate effects following the launch of ChatGPT on November 30, 2022. Our findings reveal an immediate and significant increase in systemic financial risk, measured by ΔCoVaR. Robustness checks, including placebo tests, alternative risk measures, and varying sample windows, confirm the reliability of these results. Mechanism analysis highlights that transitional challenges during GenAI adoption exacerbate systemic vulnerabilities. Smaller banks, rural commercial banks, and banks with higher nonperforming loan ratios face heightened risks, while large state-owned banks remain relatively insulated. These findings underscore the double-edged nature of disruptive innovations such that GenAI integration poses short-term risks to financial stability even if GenAI has transformative potential.

Suggested Citation

  • Yikai Zhao & Runyu Dai & Jun Nagayasu, 2025. "Generative AI: The Transformative Impact of ChatGPT on Systemic Financial Risk in Chinese Banks," DSSR Discussion Papers 145, Graduate School of Economics and Management, Tohoku University.
    • Handle: RePEc:toh:dssraa:145
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10097/0002003339
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Sylvain Benoit & Jean-Edouard Colliard & Christophe Hurlin & Christophe Pérignon, 2017. "Where the Risks Lie: A Survey on Systemic Risk," Review of Finance, European Finance Association, vol. 21(1), pages 109-152.
    2. Idier, Julien & Lamé, Gildas & Mésonnier, Jean-Stéphane, 2014. "How useful is the Marginal Expected Shortfall for the measurement of systemic exposure? A practical assessment," Journal of Banking & Finance, Elsevier, vol. 47(C), pages 134-146.
    3. Girardi, Giulio & Tolga Ergün, A., 2013. "Systemic risk measurement: Multivariate GARCH estimation of CoVaR," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 3169-3180.
    4. Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-350, July.
    5. Mensi, Walid & Hammoudeh, Shawkat & Shahzad, Syed Jawad Hussain & Shahbaz, Muhammad, 2017. "Modeling systemic risk and dependence structure between oil and stock markets using a variational mode decomposition-based copula method," Journal of Banking & Finance, Elsevier, vol. 75(C), pages 258-279.
    6. Cincinelli, Peter & Pellini, Elisabetta & Urga, Giovanni, 2022. "Systemic risk in the Chinese financial system: A panel Granger causality analysis," International Review of Financial Analysis, Elsevier, vol. 82(C).
    7. Christian Brownlees & Robert F. Engle, 2017. "SRISK: A Conditional Capital Shortfall Measure of Systemic Risk," The Review of Financial Studies, Society for Financial Studies, vol. 30(1), pages 48-79.
    8. Sebastian Calonico & Matias D. Cattaneo & Max H. Farrell & Roc ́ıo Titiunik, 2017. "rdrobust: Software for regression-discontinuity designs," Stata Journal, StataCorp LLC, vol. 17(2), pages 372-404, June.
    9. Reboredo, Juan C. & Ugolini, Andrea, 2015. "Systemic risk in European sovereign debt markets: A CoVaR-copula approach," Journal of International Money and Finance, Elsevier, vol. 51(C), pages 214-244.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pham, Thach N. & Powell, Robert & Bannigidadmath, Deepa, 2021. "Systemically important banks in Asian emerging markets: Evidence from four systemic risk measures," Pacific-Basin Finance Journal, Elsevier, vol. 70(C).
    2. Martin Waltz & Abhay Kumar Singh & Ostap Okhrin, 2022. "Vulnerability-CoVaR: investigating the crypto-market," Quantitative Finance, Taylor & Francis Journals, vol. 22(9), pages 1731-1745, September.
    3. Denisa Banulescu-Radu & Christophe Hurlin & Jérémy Leymarie & Olivier Scaillet, 2021. "Backtesting Marginal Expected Shortfall and Related Systemic Risk Measures," Management Science, INFORMS, vol. 67(9), pages 5730-5754, September.
    4. Curcio, Domenico & Gianfrancesco, Igor & Vioto, Davide, 2023. "Climate change and financial systemic risk: Evidence from US banks and insurers," Journal of Financial Stability, Elsevier, vol. 66(C).
    5. Morelli, Giacomo, 2023. "Stochastic ordering of systemic risk in commodity markets," Energy Economics, Elsevier, vol. 117(C).
    6. Goldman, Elena, 2023. "Uncertainty in systemic risks rankings: Bayesian and frequentist analysis," Finance Research Letters, Elsevier, vol. 56(C).
    7. Caporin, Massimiliano & Garcia-Jorcano, Laura & Jimenez-Martin, Juan-Angel, 2021. "TrAffic LIght system for systemic Stress: TALIS3," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).
    8. Liu, Yulin & Sadiq, Muhammad & Wen, Fenghua & Cao, Zhiling, 2024. "Interbank deposits and bank systemic risk," International Review of Financial Analysis, Elsevier, vol. 96(PB).
    9. Cipollini, Fabrizio & Giannozzi, Alessandro & Menchetti, Fiammetta & Roggi, Oliviero, 2020. "The beauty contest between systemic and systematic risk measures: Assessing the empirical performance," Journal of Empirical Finance, Elsevier, vol. 58(C), pages 316-332.
    10. Somnath Chatterjee & Marea Sing, 2021. "Measuring Systemic Risk in South African Banks," Working Papers 11004, South African Reserve Bank.
    11. Aloui, Riadh & Ben Jabeur, Sami & Mefteh-Wali, Salma, 2022. "Tail-risk spillovers from China to G7 stock market returns during the COVID-19 outbreak: A market and sectoral analysis," Research in International Business and Finance, Elsevier, vol. 62(C).
    12. Faisal Alqahtani & Nader Trabelsi & Nahla Samargandi & Syed Jawad Hussain Shahzad, 2020. "Tail Dependence and Risk Spillover from the US to GCC Banking Sectors," Mathematics, MDPI, vol. 8(11), pages 1-18, November.
    13. Laura Garcia-Jorcano & Lidia Sanchis-Marco, 2023. "Measuring Systemic Risk Using Multivariate Quantile-Located ES Models," Journal of Financial Econometrics, Oxford University Press, vol. 21(1), pages 1-72.
    14. Weidong Lin & Jose Olmo & Abderrahim Taamouti, 2025. "Portfolio Selection under Systemic Risk," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 57(4), pages 905-949, June.
    15. Warshaw, Evan, 2019. "Extreme dependence and risk spillovers across north american equity markets," The North American Journal of Economics and Finance, Elsevier, vol. 47(C), pages 237-251.
    16. Shimizu, Katsutoshi & Ly, Kim Cuong, 2017. "Were regulatory interventions effective in lowering systemic risk during the financial crisis in Japan?," Journal of Multinational Financial Management, Elsevier, vol. 41(C), pages 80-91.
    17. Zhang, Weiping & Zhuang, Xintian & Wang, Jian & Lu, Yang, 2020. "Connectedness and systemic risk spillovers analysis of Chinese sectors based on tail risk network," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    18. Mikhail Stolbov & Maria Shchepeleva, 2018. "Systemic risk in Europe: deciphering leading measures, common patterns and real effects," Annals of Finance, Springer, vol. 14(1), pages 49-91, February.
    19. Liu, Jiahao & Zhu, Bo & Hu, Xin, 2024. "Systemic risk spillovers among global energy firms: Does geopolitical risk matter?," Energy Economics, Elsevier, vol. 140(C).
    20. Xu, Yingying, 2021. "Risk spillover from energy market uncertainties to the Chinese carbon market," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:toh:dssraa:145. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tohoku University Library (email available below). General contact details of provider: https://edirc.repec.org/data/fetohjp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.