Hydrocarbon price spillover to banking performance in Eurozone

Abstract

The current study investigates the impact of real oil price shocks on the Eurozone banking sector from February 2009 to February 2022, using the Structural Vector Autoregressive method to distinguish the reaction between Eurozone bank indices and three structural indicators in the oil market shocks. The shocks include global oil demand, supply shock, and specific oil market shocks. Our findings show that the banking sector in the Eurozone responds positively toward an oil-specific demand shock (oil price) in the short run, but it responds negatively in the medium and long run that lasts for a long time. The banking sector, on the contrary, does not react to supply shocks, which provide a significant policy implication for regulators and policymakers.