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Bank leverage and systemic risk: Impact of bank risk‐taking and inter‐bank business

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  • Xiaoming Zhang
  • Wenzhe Zhang
  • Chien‐Chiang Lee

Abstract

In order to prevent and resolve systemic risk more effectively through deleveraging policy, this research takes China A‐share listed commercial banks from 2011 to 2021 as samples, calculates the systemic risk spillover through the conditional value at risk model, re‐estimates the leverage ratio with reference to the “Administration Measures for the Leverage Ratio of Commercial Banks (revised)”, and evaluates the influence of the leverage ratio on systemic risk. The results show that a high leverage ratio increases systemic risk spillover, and under this increase state‐owned commercial banks have the greatest contribution. Further research presents that a better leverage ratio enhances the systemic risk spillover by improving bank risk‐taking and encouraging inter‐bank business expansion. In addition, over different periods of economic development the influence of the leverage ratio on systemic risk exudes different characteristics. During an economic upswing, the leverage ratio's impact on systemic risk significantly drops.

Suggested Citation

  • Xiaoming Zhang & Wenzhe Zhang & Chien‐Chiang Lee, 2025. "Bank leverage and systemic risk: Impact of bank risk‐taking and inter‐bank business," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 30(2), pages 1450-1474, April.
    • Handle: RePEc:wly:ijfiec:v:30:y:2025:i:2:p:1450-1474
    DOI: 10.1002/ijfe.2973
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