Local government debt, real estate credit, and systemic risk of commercial banks

Qicheng Zhao, Wei Yin, Zhouwei Wang and Jingyi Wang

Applied Economics, 2025, vol. 57, issue 49, 8103-8120

Abstract: This study delves into the systematic tracking and monitoring of long-term equilibrium and short-term adjustments in systemic financial risk, a cornerstone for effectively implementing dual-pillar macro-prudential regulatory policies. Employing the ΔCoES indicator to gauge banking systemic risk, the paper harnesses cointegration analysis and the MS-VECM. It comprehensively examines the interactions between local government debt, real estate credit, and banking systemic risk from 2011 to 2022. The empirical findings reveal significant non-linear long-term equilibrium and short-term error correction relationships among these risks, predominantly characterized by marked dual-regime structural changes. These insights are highly relevant for consistently and coherently implementing macro-prudential regulatory policies across various economic cycles.

Date: 2025
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DOI: 10.1080/00036846.2024.2394705

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