City Research Online

Leverage and Systemic Risk Pro-Cyclicality in the Chinese Financial System

Cincinelli, P., Pellini, E. and Urga, G. (2021). Leverage and Systemic Risk Pro-Cyclicality in the Chinese Financial System. International Review of Financial Analysis,

Abstract

In this paper, we investigate the relationship between balance sheet size and leverage (i.e., leverage pro-cyclicality) and the pro-cyclicality of systemic risk using three systemic risk measures such as ∆CoV aR (Adrian & Brunnermeier, 2016), MES (Acharya et al., 2017), SRISK (Brownlees & Engle, 2016). We conduct an extensive panel data analysis using a sample of 264 Chinese listed financial institutions (43 commercial banks, 74 finance services and 147 real estate finance services) over 2005:4-2019:4. We also study the impact of different phases of the financial turmoil by considering three subperiods, the "Global Financial Crisis" (2007:1-2009:4), the "Monetary Policy Restriction" (2010:1-2014:4), and the "2015 Chinese Stock Crash" (2015:1- 2019:4). We find that leverage pro-cyclicality mainly affects CBs, in particular during the global financial crisis and the monetary policy restriction. We also find that larger financial institutions increase systemic risk, in particular commercial banks, which from 2016 started increasing shadow banking activities, and the real estate financial services with their activity closer to commercial banking.

Publication Type: Article
Additional Information: © 2021. This manuscript version is made available under the CC-BY-NC-ND 4.0 license https://creativecommons.org/licenses/by-nc-nd/4.0/
Publisher Keywords: Leverage and systemic risk pro-cyclicality; Bank and non bank financial institutions; Panel data regression
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
H Social Sciences > HG Finance
H Social Sciences > HJ Public Finance
Departments: Bayes Business School > Finance
Date available in CRO: 20 Sep 2021 12:18
Date deposited: 20 September 2021
Date of acceptance: 20 September 2021
URI: https://openaccess.city.ac.uk/id/eprint/26779
[img] Text - Accepted Version
This document is not freely accessible due to copyright restrictions.
Available under License Creative Commons Attribution Non-commercial No Derivatives.

Export

Downloads

Downloads per month over past year

View more statistics

Actions (login required)

Admin Login Admin Login