Financial earthquakes and aftershocks: From Brexit to Russia-Ukraine conflict and the stability of European banks

•The uncertain events of Brexit, the COVID-19 pandemic, and the Russia–Ukraine war hurt European bank stability.•The magnitudes of impacts significantly on specific proxies depend on the nature of each event.•Smaller, younger, and less-capitalized banks tend to be more vulnerable to the adverse impa...

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Bibliographic Details
Published in:Journal of international financial markets, institutions & money institutions & money, 2023-10, Vol.88, p.101830, Article 101830
Main Authors: Vu, Phuong Thi Thu, Huynh, Nhan, Phan, Hoa, Hoang, Hanh
Format: Article
Language:English
Subjects:
Bank stability
Economic policy uncertainty
European banks
Geopolitical risk
Health crisis
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Summary:•The uncertain events of Brexit, the COVID-19 pandemic, and the Russia–Ukraine war hurt European bank stability.•The magnitudes of impacts significantly on specific proxies depend on the nature of each event.•Smaller, younger, and less-capitalized banks tend to be more vulnerable to the adverse impacts of crises.•Banks in high-income economies perform better than middle-income groups, especially during the COVID-19 and War.•EU-affiliated banks are severely affected by the Brexit, while they perform better than non-EU banks during the War. This study examines the impacts of recent turbulent events (Brexit, COVID-19 pandemic, and the Russia – Ukraine conflict) on the European banks’ resilience. Using the quarterly data of 251 commercial banks in 33 European economies from 2014 to 2022, we find that uncertainties significantly reduce bank’s overall performance and stability. The comparisons of each event reveal the differential impacts in nature on specific indicators of performance and stability. The additional analyses highlight the roles of bank size, age, holding capital, and business models in attenuating the destabilizing effects of those shocks. The disparity effects are also visible across affiliations to income-generation levels and the European Union. The results are robust across alternative performance proxies and econometric approaches. From the starting point of this study, valuable implications are proposed for stakeholders, regulators, and policymakers in the challenges of unprecedented uncertainties.
ISSN:1042-4431
DOI:10.1016/j.intfin.2023.101830