The impact of uncertainty on financial institutions: A cross‐country study

Christopher F. Baum, Mustafa Caglayan, Bing Xu

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We examine the effects of uncertainty on several facets of the financial sector. Using a large country‐level unbalanced panel dataset, we show that inflation uncertainty reduces availability of private sector credit; harms banks' efficiency and operational performance, evidenced by lower returns and increased reliance on non‐interest income activities; and distorts sectoral stability, as liquidity, banks' appetite for risk and credit risk increases. Our findings, based on the full dataset and country splits, are economically meaningful and provide evidence that uncertainty threatens the overall health of the financial sector.
Original languageEnglish
JournalInternational Journal of Finance and Economics
Early online date20 Jul 2020
Publication statusE-pub ahead of print - 20 Jul 2020


  • financial depth
  • non-interest income
  • profitability
  • stability
  • uncertainty

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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