Economic policy uncertainty and bank systemic risk: A cross-country analysis

Duan, Yuejiao; Fan, Xiaoyun; Wang, Yu

doi:10.1016/j.pacfin.2022.101828

Cited by 16 publications

(4 citation statements)

References 64 publications

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“…First, the literature on the determinants of banking systemic risk is enriched. Previous research has identified various factors that influence banking systemic risk, including bank size, asset structure, ownership structure, macroeconomic conditions, and regulatory frameworks [27][28][29][30][31]. By establishing a correlation between shadow banking and systemic risk in the banking sector, we demonstrate that shadow banking amplifies banking systemic risks in China through complex interbank networks.…”

Section: Introductionmentioning

confidence: 66%

“…The valuation of these financial products, which exhibit a strong correlation with underlying assets, along with interbank investment behavior can significantly amplify the potential propagation of systemic risks and work against banking sustainability [76]. Furthermore, the determination of banking systemic risk and sustainability are also influenced by the central bank's implementation of monetary policy, prudential supervision, fluctuations in leverage ratios associated with the macroeconomic environment, and changes in economic cycles [30,31,77].…”

Section: Banking Systemic Risk and Sustainabilitymentioning

confidence: 99%

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Systemic Risk Arising from Shadow Banking and Sustainable Development: A Study of Wealth Management Products in China

Pan,

Fan

2024

Sustainability

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Shadow banking is a main way for the financial market to serve the real economy today, and this process is closely related to systemic risk. This study examines the impact of shadow banking associated with sustainable development in China’s banking on systemic risk. We analyze the data obtained from a rich sample of 31 listed commercial banks in China and shadow banking represented by wealth management products (WMPs) by constructing a dynamic complex interbank network model. The results show that the risks and vulnerabilities generated by shadow banking spread out through the interbank network and cause systemic risk to increase. The effect operates through increasing the number of default banks, reducing banks’ survival rate and profit, and forcing central bank bailout funds expansion. However, it has a positive impact in terms of augmenting liquidity and enhancing investment opportunities. Furthermore, the variability in the influence of different categories of shadow banking is assessed, emphasizing that short-term shadow banking exerts a more pronounced impact on systemic risk. In addition, the heterogeneity of the shadow banking effect on different types of commercial banks is explored, revealing that local and rural commercial banks experience a more conspicuous effect compared to state-owned and joint-stock banks. Our findings highlight that improving external supervision, promoting financial internal governance, and constraining credit linkages are vital for alleviating the increase in risks in shadow banking and maintaining the sustainable development of banking.

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Section: Introductionmentioning

confidence: 66%

Section: Banking Systemic Risk and Sustainabilitymentioning

confidence: 99%

Systemic Risk Arising from Shadow Banking and Sustainable Development: A Study of Wealth Management Products in China

Pan,

Fan

2024

Sustainability

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“…Nevertheless, different from the rich evidence on the uncertainty-bank lending relationship, whether and how uncertainty drives bank risk is still limited in content and context for several key reasons. First, most of the existing studies on uncertainty and bank risk have focused entirely on aggregate uncertainty (i.e., economic policy uncertainty) or its subcomponents (e.g., financial uncertainty), but not considering other uncertainty measures from the specific perspective of financial markets, especially the banking sector [11][12][13][14][15][16]. These studies work under the assumption that such uncertainty translates into uncertainty in the banking system, which then influences the risk-taking behaviors of banks.…”

Section: Introductionmentioning

confidence: 99%

Uncertainty and bank risk in an emerging market: The moderating role of business models

Huynh,

Phan

2024

PLoS ONE

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The paper explores the role of business models in the link between uncertainty and bank risk. From the perspective of banks, given that future outcomes tend to be less predictable if banking uncertainty rises, we highlight a framework that a larger dispersion of bank shocks to bank-specific variables might mirror such decreased predictability as a consequence of increasing uncertainty. To compensate for the persistence of bank risk and address the endogeneity issue, we applied the system generalized method of moments (GMM) estimator as the main regressions. Analyzing a panel of commercial banks from Vietnam between 2007 and 2019, we find that higher levels of banking uncertainty may increase bank risk, as gauged by banks’ credit risk (loan loss reverses and non-performing loans) and default risk (Z-score index). This detrimental influence of uncertainty appears to be most pronounced with banks relying on pure lending, and it decreases with more non-interest income. A deeper investigation after estimating the marginal effects with plots reveals an asymmetric pattern that bank risk is immune to uncertainty in banks with the highest level of income diversification. Interestingly, we also provide evidence that uncertainty may lower the default risk level when income diversification exceeds a sufficiently high level. Our findings demonstrate that diversified business models are an efficient buffer against higher bank risk in times of increased uncertainty.

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“…Recent studies document that uncertainty in economic policies related to the lack of clarity surrounding future government policies and regulatory frameworks adversely impacts economic activities (i.e. Baker et al 2016;Shabir et al 2021), corporate investment and profitability (i.e., Jory et al 2020;Dreyer and Schulz, 2022); corporate investment in R&D (i.e., Borghesi and Chang, 2020;Cui et al 2021); stock market risk (i.e., Kundu and Paul, 2022;Wang et al 2022); and bank systematic risk (i.e., Nguyen, 2021;Duan et al 2021Duan et al , 2022Shabir et al 2021Shabir et al , 2023.…”

Section: Introductionmentioning

confidence: 99%

The Impact of Economic Policy Uncertainty on Systemic Risk in the Fintech Industry: Evidence from Crisis Events and the COVID-19 Pandemic

Maghyereh,

Cui

2024

FEL

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<p class="MsoNormal" style="margin-top: 12pt; text-align: justify;"><span lang="EN-US" style="font-family: 'times new roman', times, serif; font-size: 14pt;">This paper investigates the effect of economic policy uncertainty (EPU) on the systemic risk of the fintech industry. To achieve this goal, we first estimate the evolution of system-wide systemic risk using the CatFin method. We further examine whether EPU significantly affects systemic risk. Our findings demonstrate that the systemic risk of the fintech industry is time-variant and sensitive to major crisis events. Systemic risk tends to increase after major crises, especially the outbreak of the COVID-19 pandemic. EPU has a considerable impact on systemic risk, notably during periods of turmoil.</span></p>

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Economic policy uncertainty and bank systemic risk: A cross-country analysis

Cited by 16 publications

References 64 publications

Systemic Risk Arising from Shadow Banking and Sustainable Development: A Study of Wealth Management Products in China

Systemic Risk Arising from Shadow Banking and Sustainable Development: A Study of Wealth Management Products in China

Uncertainty and bank risk in an emerging market: The moderating role of business models

The Impact of Economic Policy Uncertainty on Systemic Risk in the Fintech Industry: Evidence from Crisis Events and the COVID-19 Pandemic

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