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Insurance institutional shareholding and banking systemic risk contagion: an empirical study based on a least absolute shrinkage and selection operator–vector autoregression high-dimensional network

Xiaotong Song, Tiancai Xing and Xiaoyi Li

  • Shareholding by insurance institutions can curb the contagion of banking systemic risks.
  • Traditional insurance and dividend insurance were the main sources of insurance funds to stabilize the market.
  • Bank operating decisions and operating risks are the internal transmission channels for insurance institutions to reduce the risk spillover effect of banks by holding shares.

Insurance funds have attracted increasing attention as a large amount of long-term funds has been invested in the banking industry. Using the stock return data of Chinese-listed banks, this paper measures the systemic risk contagion effect of banks via the least absolute shrinkage and selection operator–vector autoregression (LASSOVAR) high-dimensional method and generalized variance decomposition. It also investigates the threshold effect of insurance institutional shareholding on the systemic risk contagion of banks. The results show that shareholding by insurance institutions can curb the contagion of banking systemic risks. However, as the shareholding ratio increases, this inhibitory effect weakens. In the heterogeneity analysis, securities investment funds, trust funds and the Qualified Foreign Institutional Investor (QFII) program did not play a role in reducing systemic risk contagion, and traditional insurance and dividend insurance were the main insurance funds stabilizing the market. Further research finds that banks’ operating decisions and operating risks act as internal transmission channels for insurance institutional shareholding to reduce their risk spillover effect. This paper expands the research on the factors influencing bank systemic risk, which is of great significance for preventing and resolving bank systemic risk and promoting the sustainable and healthy development of the banking system.

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