Abstract: Population aggregation can exert a certain degree of potential external shock to the stability of finance, which may lead to exposure of the fragility in the financial system. By selecting the micro-data of China’s listed banks and the city population density data from 2000 to 2019, this paper conducts an empirical test on the affecting direction of population aggregation on financial fragility and its action mechanism. The findings show that population aggregation can significantly lead to banks’ default risks and the rising of systemic risks, i.e., population aggregation has aggravated the financial fragility. While during the banking panic period and in the bank group with lower information asymmetry, the effect of population aggregation on banking risks is even stronger. This reveals that population aggregation can not only result in the increase of bank risks by intensifying financial panic, but also reducing bank risks by alleviating information asymmetry. Further analysis reveals that the population aggregation driven by the reform of the household registration system in 2014 has significantly raised the leverage ratio and loan-to-deposit ratio of regional commercial banks, which further contributed to the increasing of bank risks. This proves that the negative impact of population aggregation on financial stability exists solidly. Therefore, it is necessary to pay attention to the regional coordinated development and avoid excessive population aggregation; to boost public confidence and to prevent and control financial risks in the areas with dense population; and to focus on strengthening the supervision of the banking industry and to safeguard the safety and stability of the whole financial system.

Key words: population aggregation, financial fragility, bank risks, financial panic, information asymmetry