Regional economic policy uncertainty, implicit government guarantees and bank's risk-taking

This study investigates the impact of regional economic policy uncertainty (EPU) on the risk-taking of city commercial banks (CCBs) using the China provincial EPU index from 2007 to 2017. We find that CCBs take more risks as regional EPU increases, and the result exists after conducting a series of robustness tests. Furthermore, implicit government guarantees significantly strengthen this effect. The main result is particularly pronounced for CCBs with weaker internal risk resilience, located in regions with unfavorable external credit environments and more powerful governments. Additional analysis shows that regional EPU adversely affects bank performance , and CCBs attempt to mitigate this effect by expanding loans to high-profit industries . Overall, our research contributes to the practice of improving policy transparency and guiding expectations and risk management for banks.