Do oil shocks affect Chinese bank risk

Abstract This paper used the panel vector autoregression model to decompose oil shock into four discrete kinds of shocks: Supply, global demand, specific demand for oil, and oil speculation. Thereafter, their impacts on the stock returns risk of 16 listed banks in China were estimated. The results show a slight increase in bank risk in the second month affected by oil supply shock, which turned negative between the third and the 10th months. The impact of global demand shock on banking sector risk was significantly negative and recovered after 10 months. Oil-specific demand shock briefly and rapidly reduced banking sector risk in the first three months and returned to normal in the fourth month. The impact of oil speculative shock was not significant in the first four months, but increased bank risk levels between the fifth and eighth months. Additionally, the banks' group discussion results demonstrate the absence of impact of oil shock on state-owned banks, although it significantly affected the risk level of non-state-owned banks, indicating that the latter are more sensitive to oil shock