Geopolitical Risk and Domestic Bank Deposits

Theodore Kapopoulos, Dimitris Anastasiou, Steven Ongena and Athanasios Sakkas
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Theodore Kapopoulos: Athens University of Economics and Business - Department of Accounting and Finance
Athanasios Sakkas: Athens University of Economics and Business - Department of Accounting and Finance

No 25-64, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We investigate the relationship between global geopolitical risk and bank deposit flows across a wide panel of European countries. Motivated by the pivotal role of deposit stability for financial intermediation and systemic resilience, we explore whether geopolitical shocks alter depositors' portfolio choices. Using quarterly country-level data and employing the Geopolitical Risk Index (GPR) of Caldara and Iacoviello (2022) along with its sub-indices (GPR Acts and GPR Threats), we document that rising global geopolitical risk significantly increases aggregate bank deposits. Specifically, a one-standard-deviation increase in geopolitical risk is associated with an average rise of €13.3 billion in household deposits and €5.6 billion in corporate deposits, highlighting the sizable financial reallocation triggered by global uncertainty. This positive effect is channelled through a reallocation from riskier assets to deposits, with a stronger reaction observed among households compared to firms. Our findings suggest that bank deposits act as a safe-haven asset in periods of heightened global tensions, complementing the flight-to-safety phenomenon documented in sovereign bond markets. The results have important implications for financial stability analysis, monetary policy transmission and banks' liquidity risk management under geopolitical stress.

Keywords: bank deposit flows; geopolitical risk; financial instability (search for similar items in EconPapers)
JEL-codes: F51 G21 G4 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2025-07
New Economics Papers: this item is included in nep-cba, nep-eec, nep-fdg, nep-fmk, nep-ifn, nep-mon and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2564

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