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Blessing in Disguise: Policy Uncertainty and Bank Systemic Risk

Author

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  • Keyi Lan
  • Sichao Ma
  • Yuchao Peng
  • Fanzhi Wang

Abstract

Does higher policy uncertainty lead to higher financial risk? This study provides evidence of the opposite. Based on a sample of 16 listed banks from 2011 to 2020 in China, we find that economic policy uncertainty has a significant negative impact on bank systemic risk and that the effect is more pronounced for small and unprofitable banks. Further analysis shows that the decline in bank systemic risk is due to the lower asset and liability structural similarity between banks. This study uncovers a volunteer mechanism of preventing bank systemic risk under policy uncertainty.

Suggested Citation

  • Keyi Lan & Sichao Ma & Yuchao Peng & Fanzhi Wang, 2022. "Blessing in Disguise: Policy Uncertainty and Bank Systemic Risk," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(15), pages 4271-4285, December.
    • Handle: RePEc:mes:emfitr:v:58:y:2022:i:15:p:4271-4285
    DOI: 10.1080/1540496X.2022.2093104
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    Cited by:

    1. Fang, Yi & Wang, Yanru & Wang, Qi & Zhao, Yang, 2023. "Policy uncertainty and bank systemic risk: A perspective of risk decomposition," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 88(C).
    2. Deng, Yuanyue & Li, Sijing, 2024. "Do global and local economic policy uncertainties matter for systemic risk in the international banking system," Finance Research Letters, Elsevier, vol. 59(C).

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