Economic Uncertainty and Bank Risk: Evidence from Emerging Economies

58 Pages Posted: 25 Oct 2019 Last revised: 6 Jan 2020

See all articles by Bang Nam Jeon

Bang Nam Jeon

Drexel University - Department of Economics & International Business; Drexel University-School of Economics

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: January 6, 2020

Abstract

This paper examines the impact of economic uncertainty on the risk of banks, which is only underexplored in extant literature so far. Using bank-level panel data of approximately 1500 banks in 34 emerging economies during the period of 2000-2016, we find consistent and robust evidence that bank risk increases as the level of economic uncertainty increases. We also investigate possible mechanisms whereby economic uncertainty is translated into bank risk, and present evidence that the uncertainty-bank risk nexus may be attributable to various supply-side effects, including the option value of waiting, the search-for-yield strategy and bank herding behaviors.

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 (January 6, 2020). 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

Drexel University-School of Economics ( 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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