Generative AI: The Transformative Impact of ChatGPT on Systemic Financial Risk in Chinese Banks

Yikai Zhao, Runyu Dai and Jun Nagayasu

No 145, DSSR Discussion Papers from Graduate School of Economics and Management, Tohoku University

Abstract: We investigate the impact of ChatGPT, a generative AI (GenAI) application, on the systemic financial risk of Chinese banks. Using a sample of 42 publicly traded banks and employing regression discontinuity and regression discontinuity difference-in-differences methodologies, we assess the immediate effects following the launch of ChatGPT on November 30, 2022. Our findings reveal an immediate and significant increase in systemic financial risk, measured by ΔCoVaR. Robustness checks, including placebo tests, alternative risk measures, and varying sample windows, confirm the reliability of these results. Mechanism analysis highlights that transitional challenges during GenAI adoption exacerbate systemic vulnerabilities. Smaller banks, rural commercial banks, and banks with higher nonperforming loan ratios face heightened risks, while large state-owned banks remain relatively insulated. These findings underscore the double-edged nature of disruptive innovations such that GenAI integration poses short-term risks to financial stability even if GenAI has transformative potential.

Pages: 50 pages
Date: 2025-03-04
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Persistent link: https://EconPapers.repec.org/RePEc:toh:dssraa:145

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