Background and Motivation
The rapid integration of big data, blockchain, artificial intelligence, and other digital technologies has fundamentally transformed the banking sector. In China, commercial banks have actively pursued digital transformation, supported by national policies such as the Guidance on Digital Transformation of Banking and Insurance Industry (2022) and the Action Plan for Promoting High-Quality Development of Digital Finance (2024). While digitalisation promises enhanced efficiency and innovation, it also introduces new risks, including cybersecurity threats, operational contagion, and regulatory challenges. The balance between technological advancement and financial stability remains a critical yet underexplored issue. This study investigates how digital transformation influences systemic risk within China’s banking system, providing timely insights for regulators and financial institutions navigating the digital era.
Methodology and Scope
Using quarterly unbalanced panel data from 36 listed commercial banks in China between 2011 and 2020, the research employs a fixed-effects model to analyse the relationship between digital transformation and systemic risk. Digital transformation is measured through text analysis of bank reports, capturing keywords related to AI, blockchain, cloud computing, and big data. Systemic risk is decomposed into two components: bank-specific tail risk and systemic linkage to extreme market shocks, estimated using extreme value theory. The study further examines heterogeneity across bank types, cost-saving mechanisms, and nonlinear effects to offer a comprehensive view of digitalisation’s impact.
Key Findings and Contributions
Why It Matters
As digitalisation accelerates globally, understanding its implications for financial stability is crucial for policymakers, regulators, and bank managers. This study provides empirical evidence that digital transformation can enhance resilience but also warns against unchecked technological expansion. It bridges gaps between technological adoption, risk management, and regulatory frameworks, offering a balanced perspective essential for sustaining financial system integrity in the digital age.
Practical Applications
Discover high-quality academic insights in finance from this article published in China Finance Review International . Click the DOI below to read the full-text!
China Finance Review International
News article
How does digital transformation affect banks’ systemic risk? Evidence from China
26-Nov-2025