The impact of the COVID-19 pandemic on bank systemic risk: some cross-country evidence
China Finance Review International
ISSN: 2044-1398
Article publication date: 20 January 2023
Issue publication date: 9 August 2023
Abstract
Purpose
This study tends to investigate how the outbreak of the coronavirus disease 2019 (COVID-19) pandemic has affected banks' contribution to systemic risk. In addition, the authors examine whether the impact of the pandemic may vary across advanced/emerging economies, and with banks with differed characteristics.
Design/methodology/approach
The authors construct the bank-specific conditional value at risk (CoVaR) and marginal expected shortfall (MES) to measure their contribution to systemic risk and define the outbreak of the COVID-19 pandemic by the timing when countries report more than 100 confirmed cases. The authors use the approach of difference-in-differences to assess the impact of the COVID-19 pandemic on banks' contribution to systemic risk. This sample comprises monthly panel data of around 900 listed commercial banks in 39 advanced and emerging economies.
Findings
The authors find that, firstly, the COVID-19 pandemic increased banks' contribution to systemic risk significantly around the world. Secondly, the impact of the COVID-19 virus was more pronounced in developed countries than in emerging economies. Finally, banks with a larger size and higher loan-to-deposit ratio are more greatly affected by the COVID-19 pandemic, while a higher capitalization for banks is insufficient to shelter them from the adverse impact of such pandemic.
Originality/value
The authors assess the impact of the COVID-19 pandemic on banks' contribution to systemic risk. Using the conditional value at risk (marginal expected shortfall) of banks as the measure, this study’s results suggest that banks' contribution to systemic risk increases by around 25% (48%) amid the COVID-19 pandemic. This study’s findings may shed some light on the potential policies that financial regulators may employ to ameliorate the adverse outcomes of the ongoing pandemic.
Keywords
Acknowledgements
Ji Wu thanks the support by the Guanghua Talent Project of Southwestern University of Finance and Economics.
Citation
Yan, Y., Jeon, B.N. and Wu, J. (2023), "The impact of the COVID-19 pandemic on bank systemic risk: some cross-country evidence", China Finance Review International, Vol. 13 No. 3, pp. 388-409. https://doi.org/10.1108/CFRI-08-2022-0158
Publisher
:Emerald Publishing Limited
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