Purpose This paper aims to investigate the link between uncertainty in banking and bank lending behavior, particularly shedding light on the modifying role of bank competition in the nexus. Design/methodology/approach The study uses a panel of Vietnamese banks over the 2007–2019 period for empirical analysis and the dispersion of shocks to bank-level variables to measure banking uncertainty. To strongly confirm our findings, the authors perform a battery of alternative checks based on different econometric techniques, including fixed effect regressions with Driscoll–Kraay standard errors, the two-step system generalized method of moments estimator and the least squares dummy variable-corrected estimator. Findings Uncertainty induces multifaceted unfavorable impacts on bank lending. Concretely, banks tend to restraint loan growth, suffer more credit risk, and charge higher lending rates during periods of higher uncertainty. Further investigation reveals that lending activities of banks with greater market power are less sensitive to adverse uncertainty shocks; in other words, increased competition in the banking system is associated with more substantial consequences of uncertainty on bank lending. Originality/value To the best of the authors’ knowledge, this study is the first attempt to simultaneously explore the impacts of uncertainty on quantity, quality and prices of bank lending. This paper also aim at putting forth the level of uncertainty particularly related to the banking sector. Importantly, examining the conditionality of the linkage between uncertainty and bank lending with respect to bank competition is entirely novel.

We add households with heterogeneous discount factors and constrained credit to a research and development (R&D)-based endogenous growth model. Borrowers' access to credit has profound implications for growth. The direction and magnitude of this effect depend on preferences over labor supply. If labor supply is highly elastic and households do not smooth their labor supply between labor that produces output and R&D, annual growth decreases from 11.6% to approximately zero as the debt-to-capital ratio rises from 0 to 1.38. If households instead have a strong preference for smoothing their labor supply, then growth increases from 2.91% to 3.83% as the debt-to-capital ratio rises from 0 to 1.55. In both cases, less elastic labor supply weakens these effects. The results are similar if existing ideas do not affect the creation of new ideas. Now, when households do not smooth their labor supply, less debt results in faster growth, and productivity and output converge to much higher values.

The paper explores the impact of uncertainty on bank liquidity hoarding, particularly providing new insights on the nature of the impact by bank-level heterogeneity. We consider the cross-sectional dispersion of shocks to key bank variables to estimate uncertainty in the banking sector and include all banking items to construct a comprehensive measure of bank liquidity hoarding. Using a sample of Vietnamese banks during 2007–2019, we document that banks tend to increase total liquidity hoarding in response to higher uncertainty; this pattern is still valid for on- and off-balance sheet liquidity hoarding. Further analysis with bank-level heterogeneity indicates that the impact of banking uncertainty on liquidity hoarding is significantly stronger for weaker banks, i. e., banks that are smaller, more poorly capitalized, and riskier. In testing the “search for yield” hypothesis to explain the linkage between uncertainty and bank liquidity hoarding, we do not find it to be the case. Our findings remain extremely robust after multiple robustness tests.

PurposeThe paper investigates the link between uncertainty and banks' balance sheet reactions.Design/methodology/approachThe study employs bank-level data in Vietnam during 2007–2019 to measure micro uncertainty in banking through the dispersion of bank-level shocks. Empirical regressions are performed by the two-step system generalized method of moments (GMM) estimator and then verified using the least squares dummy variable corrected (LSDVC) technique.FindingsBanks tend to reduce risky loans, hoard more liquidity and decrease financial leverage in response to higher uncertainty. The relationship between uncertainty and banks' balance sheet reactions is more pronounced for banks that suffer more credit risk and overall risk, thus supporting the precautionary motive of banks. Additionally, uncertainty also leads to a decline in the Net Stable Funding Ratio (NSFR) under Basel III, implying that banks may fail to find a more stable source of funding and be more subject to maturity mismatch during periods of higher uncertainty.Originality/valueThe paper is the first to explore comprehensively the relationship between uncertainty and banks' balance sheet aspects as simultaneously estimated by bank loans, bank liquidity and bank leverage. While many other uncertainty measures display aggregate uncertainty sources, an important contribution in this study is to anatomize uncertainty originating exclusively from banking at a disaggregate level. Besides, shedding light on how uncertainty drives bank funding liquidity as captured by the NSFR under Basel III is entirely novel in the literature.

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