Geopolitical Risk, Financial Fragmentation and Banking Vulnerabilities: A Global Autoregressive Distributed Lag Analysis

Chokri Zehri, Latifa Saleh Ben Ammar and Wissem Ajili Ben Youssef ()
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Chokri Zehri: PSAU - Prince Sattam Bin Abdul-Aziz University
Latifa Saleh Ben Ammar: PSAU - Prince Sattam Bin Abdul-Aziz University
Wissem Ajili Ben Youssef: Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School

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Abstract: Escalating geopolitical conflicts have heightened disruptions to global financial integration and intensified market fragmentation. This research investigates how geopolitical risks drive global financial fragmentation, undermining banking stability and diminishing cross‐border risk diversification. Using an Autoregressive Distributed Lag framework, we analyse fixed effects panel data spanning 47 advanced and emerging economies between 1990 and 2024. Results reveal that growing geopolitical strife amplifies financial fragmentation and elevates short‐term banking sector vulnerabilities. However, institutions with robust capital buffers and stringent non‐performing loan provisions demonstrate enhanced resilience. Long‐term analysis shows geopolitical uncertainties and financial disintegration substantially erode international risk‐sharing capacities, disproportionately affecting emerging markets compared to advanced economies. Policy recommendations highlight critical measures to strengthen financial safeguards, upgrade risk mitigation frameworks and maintain stable foreign direct investment channels.

Date: 2025-08-14
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Published in Economics of Transition and Institutional Change, 2025, ⟨10.1111/ecot.70009⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05235835

DOI: 10.1111/ecot.70009

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