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

Christopher F. Baum, Mustafa Caglayan, Bing Xu

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)
60 Downloads (Pure)

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
Pages (from-to)3719-3739
Number of pages21
JournalInternational Journal of Finance and Economics
Volume26
Issue number3
Early online date20 Jul 2020
DOIs
Publication statusPublished - Jul 2021

Keywords

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

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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