<p>Preventing and mitigating major economic and financial risks are key concerns for the government. We employ the China’s large-scale fiscal bailouts during 2015–2018 as a quasi-natural experiment and utilizes intensity DID model to examine the impact and mechanism of China’s large-scale fiscal bailouts on regional financial risk. We find that fiscal bailouts significantly increased regional financial risk. Mechanism analysis reveals that while the fiscal bailouts effectively reduced local government debt risk, it also led to a decline in financial institutions’ returns, prompting them to seek alternative high-yield investment opportunities. A substantial portion of the bailout funds flowed into the real estate sector, fueling a rapid expansion of the housing market. The decline in financial institutions’ returns and the shift to high-risk assets directly increased financial institutions’ risk exposure, effectively transferring risk from the government sector to the regional financial sector. Further research reveals that in regions with higher levels of financial development, the impact of fiscal bailouts on regional financial risks is stronger.</p>