Economic Policy Uncertainty–Bank Risk Nexus: Cross-Country Evidence

Abstract

This paper examines the impact of economic policy uncertainty on bank systemic risk, utilising a sample of 600 commercial banks across 70 developed and developing countries from 2001 to 2021. Using a text frequency-based uncertainty measure, this paper provides evidence of the positive relationship between economic policy uncertainty and bank systemic risk. The results confirm that, while enhanced media freedom exacerbates the effect of economic policy uncertainty on bank systemic risk, elevated levels of social trust mitigate the adverse influence of economic policy uncertainty on bank stability. These findings remain consistent when accounting for endogeneity concerns and have important policy and practical implications.