Economic Uncertainty and Bank Risk: Evidence from Emerging Economies

54 Pages Posted: 25 Oct 2019

See all articles by Bang Nam Jeon

Bang Nam Jeon

Drexel University - Department of Economics & International Business

Ji Wu

Southwestern University of Finance and Economics (SWUFE) - Research Institute of Economics & Management; Pennsylvania State University Harrisburg

Yao Yao

Southwestern University of Finance and Economics (SWUFE); Research Institute of Economics and Management

Minghua Chen

Southwestern University of Finance and Economics - Research Institute of Economics and Management

Date Written: October 1, 2019

Abstract

This paper examines the impact of economic uncertainty on the risk of banks in emerging markets. Using the data of approximately 1500 banks in 34 emerging economies during the period of 2000-2016, we find consistent evidence that bank risk increases with the level of uncertainty. Economic uncertainty mainly exerts its impact by affecting banks’ return and its volatility, and the effect of nominal uncertainty is seemingly more conspicuous relative to that of real uncertainty. We also find that the effect of uncertainty on bank risk is conditional on banks’ characteristics such as size and efficiency. Moreover, macroprudential policies can play a stabilizing force by mitigating bank risk as economic uncertainty surges.

Keywords: Economic uncertainty, Bank risk, Emerging economies

JEL Classification: G21, G15

Suggested Citation

Jeon, Bang Nam and Wu, Ji and Yao, Yao and Chen, Minghua, Economic Uncertainty and Bank Risk: Evidence from Emerging Economies (October 1, 2019). Available at SSRN: https://ssrn.com/abstract=3469354 or http://dx.doi.org/10.2139/ssrn.3469354

Bang Nam Jeon (Contact Author)

Drexel University - Department of Economics & International Business ( email )

3141 Chestnut St.
Philadelphia, PA 19104
United States

Ji Wu

Southwestern University of Finance and Economics (SWUFE) - Research Institute of Economics & Management ( email )

55 Guanghuacun St
Chengdu, Sichuan 610074
China

Pennsylvania State University Harrisburg ( email )

777 West Harrisburg Pike
Middletown, PA 17057
United States

Yao Yao

Southwestern University of Finance and Economics (SWUFE) ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

Research Institute of Economics and Management ( email )

55 Guanghuacun Street
Chengdu, Sichuan 610074
China

Minghua Chen

Southwestern University of Finance and Economics - Research Institute of Economics and Management ( email )

Gezhi Building 1201
555 Liutai Revenue, Wenjiang District
Chengdu, Sichuan 610074
China

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