Economic policy uncertainty and bank liquidity hoarding

Berger, Allen N.; Guedhami, Omrane; Kim, Hugh Hoikwang; Li, Xinming

doi:10.1016/j.jfi.2020.100893

Cited by 169 publications

(150 citation statements)

References 54 publications

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“…We also address endogeneity concerns by conducting two-stage least squares (2SLS) estimations with instrumental variables. We follow Gulen and Ion (2016) and Berger et al (2020) and use the Senate polarization index as an instrument for EPU and confirm our baseline findings. For deeper insights, we also decompose our primary bank stability measure, the Z-score, into its two components, i.e., risk-adjusted returns and risk-adjusted capitalization.…”

Section: Introductionmentioning

confidence: 54%

“…We extract bank-level data from the Fitch Connect database 6 , initially for a quarterly panel of 6088 US commercial banks from 2011Q1 to 2020Q3 7 . We focus only on commercial banks to minimize any bias due to business model differences among banks (Bordo et al, 2016;Berger et al, 2020). To mitigate potential selection bias issues, we include all banks in the database, including those that have ceased operations.…”

Section: Data and Variablesmentioning

confidence: 99%

“…The index is available monthly in the database, and we use the quarterend values to generate our main quarterly variable for the period ranging from 2011Q1 to 2020Q3. We follow Gulen and Ion (2016) and Berger et al (2020) and take the natural logarithm of the index because it is highly skewed, and we call the transformed variable EPU for brevity. Table 2 presents the descriptive statistics and shows that EPU ranges from 4.38 to 5.65 with an average of 4.88 and a standard deviation of 0.31, indicating considerable variation across quarters.…”

Section: Economic Policy Uncertainty Measuresmentioning

confidence: 99%

“…Some papers have explored the influence of EPU on bank lending (Nguyen et al 2020;Bordo et al 2016;Hu and Gong, 2019;Bilgin et al 2021;Biswas and Zhai, 2021). Others have looked at its impact on loan pricing (Ashraf and Shen, 2019), loan contracts (Huang et al 2020), capital shortages (Matousek et al 2020) or bank liquidity hoarding (Berger et al 2020).…”

Section: Introductionmentioning

confidence: 99%

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Economic Policy Uncertainty and Bank Stability

Danışman

Tarazi

2021

SSRN Journal

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We examine the influence of economic policy uncertainty on bank stability post-2007-2008 global financial crisis. We rely on the economic policy uncertainty (EPU) index introduced by Baker et al. (2016). We use 176,477 quarterly observations for US commercial banks over the period from 2011Q1 to 2020Q3 and find consistent and robust evidence that bank stability decreases as the level of economic policy uncertainty increases. We specifically control for demand-side effects which indicates that the decrease in bank stability not only originates from borrowers' and customers' conditions but also from a change in bank behavior. A deeper investigation shows that the negative impact of policy uncertainty on bank stability is stronger for larger banks, and weaker for highly capitalized banks as well as for more liquid banks. Our findings have important implications particularly for the COVID-19 policy implementations.

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Section: Introductionmentioning

confidence: 54%

Section: Data and Variablesmentioning

confidence: 99%

Section: Economic Policy Uncertainty Measuresmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Economic Policy Uncertainty and Bank Stability

Danışman

Tarazi

2021

SSRN Journal

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“…Also, they find that the majority of the explanatory power of the overall economic policy uncertainty is derived from its government spending economic policy uncertainty. Berger et al (2020) show that bank liquidity hoarding is an important channel through which economic policy uncertainty hurts the real economy. They show that banks hoard liquidity in response to economic policy uncertainty.…”

Section: Effect On the Banking Systemmentioning

confidence: 99%

Economic Policy Uncertainty in Banking: A Literature Review

Ozili¹

2021

SSRN Journal

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This paper is a survey of the most important research in the economic policy uncertainty literature.Economic policy uncertainty, although still under-researched relative to mainstream topics in economics and finance, has recently received increased scholarly attention. Through synthesizing common themes in the literature, the paper highlights the progress made so far and suggest some avenues for future research which allows future researchers to position their research and differentiate themselves from other studies in the literature. The paper finds that economic policy uncertainty affects banks through a reduction in credit supply and loan re-pricing. High economic policy uncertainty compel bank managers to discretionary distort bank financial reporting in ways that help them to mitigate the depressing effect of economic policy uncertainty on their profitability.

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How do economic policy uncertainties affect stock market volatility? Evidence from G7 countries

Wang

2020

Int. J Fin Econ

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This study explores the dynamic and frequency spillover characteristics between economic policy uncertainty (EPU) and stock market realized volatility (RV) in G7 countries. We apply the monthly data of country-specific economic policy uncertainty indices and realized volatility to calculate the directional spillover indicator. Then we use a Fourier transformation to calculate the frequency of spillovers to study the duration of the spillover effect. We find that the spillover effect of EPU on stock market volatility is relatively large in the U.S., Japan and Canada, and has certain regional similarities. EPU has longer spillover effects on the stock markets of France, Germany and Italy, which is strongest over 3-18 months. Finally, important economic events such as the financial crisis and the Brexit, increased EPU spillover level and lasting time. We provide the dynamic and frequency spillover characteristics between EPU and the stock market in G7 countries, making this study useful for international asset allocation and risk management.

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Economic policy uncertainty and bank liquidity hoarding

Cited by 169 publications

References 54 publications

Economic Policy Uncertainty and Bank Stability

Economic Policy Uncertainty and Bank Stability

Economic Policy Uncertainty in Banking: A Literature Review

How do economic policy uncertainties affect stock market volatility? Evidence from G7 countries

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