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

Christopher F. Baum, Mustafa Caglayan, Bing Xu

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Abstract

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
DOIs
Publication statusE-pub ahead of print - 20 Jul 2020

Keywords

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

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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    This is the pre-peer reviewed version of the following article: Baum, CF, Caglayan, M, Xu, B. The impact of uncertainty on financial institutions: A cross‐country study. Int J Fin Econ. 2020; 1– 21, which has been published in final form at https://doi.org/10.1002/ijfe.1983. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.

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