Policy uncertainty and bank systemic risk: A perspective of risk decomposition

Yi Fang, Yanru Wang, Qi Wang and Yang Zhao

Journal of International Financial Markets, Institutions and Money, 2023, vol. 88, issue C

Abstract: This paper examines the driving effect of economic policy uncertainty on bank systemic risk with a distinction between systemic linkage and bank tail risk. Using bank-level data of 25 economies during the period 2010–2020, we find consistent and robust evidence that policy uncertainty is negatively associated with bank tail risk but positively related to systemic linkage. When policy uncertainty emerges, banks tend to perform less risk-taking activities but with more homogeneous business patterns, which reflect in market performance. We also investigate the role of national culture that a more individualistic and short-term orientated culture environment will aggravate bank systemic risk.

Keywords: Economic policy uncertainty; Bank systemic risk; Systemic linkage; Bank tail risk; National culture (search for similar items in EconPapers)
JEL-codes: G15 G21 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:88:y:2023:i:c:s1042443123000951

DOI: 10.1016/j.intfin.2023.101827

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