Author(s)

Difei Zhang ¹

Affiliation(s)

¹ Institute of Finance, Central University of Finance and Economics, Beijing, 100000, China

Corresponding Author

Difei Zhang

ABSTRACT

As China's opening up continues to improve, the capital market has developed a pipeline-style opening, which gradually increased the proportion of foreign investors and correspondingly enlarged the scale of cross-border capital flows. However, the increasing scale and volatility of cross-border capital flows may cause cross-border contagion of financial risks and affect bank risk-taking. To examine the relationship between cross-border capital flows and bank risk-taking, this study examines the impact of cross-border capital flows on commercial banks' risk-taking in China, using data from 38 banks over 2016-2022. Empirical results reveal that increased capital flows significantly heighten banks' risk-taking. Besides that, the impact of cross-border capital flows on bank risk-taking is heterogeneous. The risk-taking level affected by cross-border capital flows of city and rural commercial banks has increased much higher than that of state-owned banks and joint-stock banks. These findings underscore the need for targeted macro-prudential policies to manage financial stability amidst expanding capital flows.

KEYWORDS

Cross-Border Capital Flows, Risk-Taking, Bank Stability

CITE THIS PAPER

Difei Zhang, The Effect of Cross-border Capital Flows on Commercial Banks' Risk-taking in China. Financial Engineering and Risk Management (2024) Vol. 7: 77-83. DOI: http://dx.doi.org/10.23977/ferm.2024.070510.

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