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<p>Amid the recent economic downturn, expansionary fiscal policies have intensified subnational fiscal pressure, elevating banks’ perceived credit risk and reshaping credit allocation. Using annual panel data from 2007 to 2021 for commercial banks in China, this paper examines how local fiscal pressure affects loan-portfolio concentration and how the two-pillar regulatory framework—monetary policy and macroprudential tools—modulates that relationship. We find that heightened fiscal pressure prompts banks to reduce loan concentration through multiple channels: weakened government guarantees, lower moral-hazard incentives, and a shift toward central-bank liquidity under accommodative monetary policy. Microprudential measures mitigate concentration and thus dampen the direct effect of fiscal stress. The fiscal-pressure effect is heterogeneous across bank types and over time. Using causal mediation analysis, we show how monetary and macroprudential policies both mediate and moderate this effect. While focused on China, the mechanisms have broader relevance for emerging economies confronting similar subnational fiscal challenges.</p>

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Local fiscal pressure and bank risk-taking: evidence on loan concentration in China

  • 期刊论文

  • 发表日期：

    2026年4月15日

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  • Chunyu Cao,
  • Haifeng Mai,
  • Mengnan Zhu,
  • Yun Zhang,
  • Jingya Sun

摘要

Amid the recent economic downturn, expansionary fiscal policies have intensified subnational fiscal pressure, elevating banks’ perceived credit risk and reshaping credit allocation. Using annual panel data from 2007 to 2021 for commercial banks in China, this paper examines how local fiscal pressure affects loan-portfolio concentration and how the two-pillar regulatory framework—monetary policy and macroprudential tools—modulates that relationship. We find that heightened fiscal pressure prompts banks to reduce loan concentration through multiple channels: weakened government guarantees, lower moral-hazard incentives, and a shift toward central-bank liquidity under accommodative monetary policy. Microprudential measures mitigate concentration and thus dampen the direct effect of fiscal stress. The fiscal-pressure effect is heterogeneous across bank types and over time. Using causal mediation analysis, we show how monetary and macroprudential policies both mediate and moderate this effect. While focused on China, the mechanisms have broader relevance for emerging economies confronting similar subnational fiscal challenges.