120 years of insight: Geopolitical risk and bank solvency

Markus Behn, Jan Hannes Lang and Alessio Reghezza ()

Economics Letters, 2025, vol. 247, issue C

Abstract: What do 120 years of data say about the relationship between geopolitical risk and bank solvency? We find that a two standard deviation increase in a geopolitical risk index is associated with a decrease in the bank capital-to-asset ratio of around 0.2 percentage points. The effect is non-linear: only very high geopolitical risk leads to a sizeable decline in bank capitalisation, while more moderate increases of the index exert a negligible impact. This suggests that only major geopolitical events are likely to affect bank solvency to a degree that can endanger financial stability.

Keywords: Geopolitical risk; Bank capitalisation; Financial stability (search for similar items in EconPapers)
JEL-codes: F51 G15 G2 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:247:y:2025:i:c:s0165176525000059

DOI: 10.1016/j.econlet.2025.112168

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