Local government debt and commercial bank liquidity creation

Zhimin He, Weiye Chen, Minghui Chen and Shuping He

Finance Research Letters, 2025, vol. 80, issue C

Abstract: The concentration of local government debt in commercial banks raises the risk of broader financial issues. Analyzing data from Chinese commercial banks between 2011 and 2022, we find that local government debt reduces liquidity creation by increasing liquidity risk and non-performing loans. This negative effect is more significant in banks with less green credit and those in smaller cities.

Keywords: Local government debt; Bank liquidity creation; Liquidity risk; Non-performing loans risk (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:80:y:2025:i:c:s154461232500580x

DOI: 10.1016/j.frl.2025.107317

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