Foreign investors and systemic risk in Chinese banks: the role of economic policy uncertainty

This study explores how foreign ownership influences systemic risk in Chinese listed commercial banks and further investigates the role of economic policy uncertainty. We employ a novel volatility spillover approach to disaggregate systemic risk into short-term and long-term components. Our results suggest that the effect of foreign investors on systemic risk management primarily mitigates short-term systemic risk. Moreover, during periods of high economic policy uncertainty, foreign investors strengthen their focus on managing short-term systemic risk, while having an unfavourable impact on long-term financial stability. This offers a more comprehensive understanding of the dual role foreign investors playing in banking risk management.