Economic Policy Uncertainty and Bank Stability: Does Bank Regulation and Supervision Matter in Major Europe Economies?

36 Pages Posted: 1 Feb 2021

Date Written: January 16, 2021

Abstract

Motivated by the unprecedented high levels of recent economic policy uncertainty in Europe and the globe, this paper examines the relationship between economic policy uncertainty and bank stability, as well as the conditioning effects of bank regulation and supervision on this relationship. Using a sample of around 900 commercial banks in eight major European countries over the period 2005-2014, economic policy uncertainty has been consistently linked to a sharp decrease in bank stability, once other traditional drivers are controlled for. More importantly, this paper offers insight into how strengthening bank regulation and supervision, particularly regulations on activity restrictions, capital stringency, official supervisory power, and private monitoring, cushions the adverse effects of policy uncertainty on bank stability.

Keywords: Economic Policy Uncertainty; Bank Stability; Bank Regulation and Supervision

JEL Classification: D81, G18, G21, D81

Suggested Citation

Nguyen, Thanh Cong, Economic Policy Uncertainty and Bank Stability: Does Bank Regulation and Supervision Matter in Major Europe Economies? (January 16, 2021). Available at SSRN: https://ssrn.com/abstract=3767196 or http://dx.doi.org/10.2139/ssrn.3767196

Thanh Cong Nguyen (Contact Author)

Phenikaa University ( email )

To Huu road, Yen Nghia
Ha Dong district
Hanoi, Hanoi 100803
Vietnam

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