Economic Policy Uncertainty and Banks' Interest Income: Empirical Evidence from an International Panel Dataset

Whelsy Boungou and Charles Mawusi ()
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Charles Mawusi: University of Bordeaux

Economics Bulletin, 2021, vol. 41, issue 3, 2003-2011

Abstract: In this paper, we provide the first cross-country empirical evidence on the relationship between economic policy uncertainty (EPU) and banks' interest income activities (measured using the net interest income). Using bank-level panel data of 3,252 banks in 16 economies over the period 2009-2018, we show that EPU has a negative and statistically significant effect on banks' net interest income (NII). Specifically, we find that banks' NII decreases as the level of EPU increases. We also show that this reduction is due to the reduction in other interest income which is only partially offset by the reduction in other interest expense. Finally, our results show that the reduction in banks' net interest income (associated with an increase in EPU) is stronger for banks located in countries where negative interest rates are in place.

Keywords: Economic Policy Uncertainty; Banking; Interest Income Activities; Panel Data (search for similar items in EconPapers)
JEL-codes: D8 G2 (search for similar items in EconPapers)
Date: 2021-09-18
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Citations: View citations in EconPapers (1)

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