Influence Of Local Government Debt Tail Risks Spatial Spillover On Systemic Risk In Financial Systems

The prevention of systemic financial risks has always been the focus of financial work.In recent years,the scale of local government debt in China has been rising rapidly,and the high local government debt has seriously affected the stability of China’s financial environment.In view of the complex spatial spillover effect of local government debt risk,we should keep a high degree of vigilance against the evolution trend from regional exposure of local government debt risk to overall financial risk.When a large amount of financial production capacity flows into the field of local government debt,systemic financial risk may be induced by the spatial spillover of tail risks of local government debt.In this paper,the credit spread data of provincial urban investment bonds are used to measure the individual risk of local government debt first.TENET method is used to construct the spatial spillover index of local government debt tail risk for the next step,and then the index is used to measure the overall local government debt risk situation in China.On this basis,the relationship between the spatial spillover of local government debt tail risk and systemic financial risk is further studied.Furthermore,it investigate the relationship between spatial correlation of local government debt and systemic financial risk in a nonlinear environment by means of smooth vector autoregressive model and DY spillover contagion matrix.In addition,it compares the characteristics of systemic financial risk transmission of local government debt risk spatial spillover under different regional systems,and dig deep into its transmission mechanism based on three intermediary variables with significant differences in different regional systems.The results prove that a obvious complex multi-thread spatial overflow mechanism is found in the tail risk of local government debt.Spatial spillover of tail-risks in the local government debt will obviously lead to the increase of financial risk,showing asymmetric characteristics;When the spatial spillover index is high,its positive impact on financial risks may last longer and be with a greater range.DY spillover contagion matrix shows that the spatial spillover of local government debt has a net spillover effect on systemic financial risks in the peak period of spatial spillover index,specifically,the overall spillover index is 77.25%,which is significantly higher than 67.66%in the low-region system period.This phenomenon shows that the linkage between financial institutions is stronger when there is a high spatial spillover risk of local government debt,and it will also lead to a higher level of systemic financial risk accordingly.Large state-owned banks are the main body of net spatial spillover in risk contagion in both the two regional systems.When there is a high risk in local government debt,urban investment debt transactions become more frequent,and the non-performing loan ratio of commercial banks is higher,and their capital adequacy ratio is lower spontaneously.This phenomenon shows that local government debt risk may exert an impact on systemic financial risk through direct asset-liability channels and indirect macroeconomic channels.In order to prevent the spatial spread of local government debt risk,and prevent its risk spillover to the financial system and its evolution to systemic financial risk,this paper puts forward some corresponding policy recommendations.