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<p>This article examines the impact of economic policy uncertainty (EPU) on the business models of UK banks from 2005 to 2019, a period marked by the Global Financial Crisis (GFC) and Brexit. The study identifies a non-linear relationship between EPU and the share of non-interest income: moderate increases in uncertainty encourage non-interest income activities, while extreme uncertainty leads banks to shift from diversification to traditional interest income activities. This reversal is primarily driven by improved regulatory oversight, with monetary policy playing a role only during the GFC but not in the context of Brexit. Similar to domestic EPU, European and global EPUs also exhibit a nonlinear relationship with non-interest income. General elections and a single-party majority in Parliament as political uncertainty factors do not significantly influence the bank business model. However, uncertainty arising from narrow vote margins and thus political competition, specifically between the Conservative and Labour parties, drives a strategic shift toward non-interest income. These findings offer valuable insights for bank managers, policymakers, and regulators in both the UK and other developed economies.</p>

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The zone of interest: deciphering economic policy uncertainty and bank business models in the UK

  • 期刊论文

  • 出版模式：

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  • 发表日期：

    2026年5月5日

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  • Caner Gerek

摘要

This article examines the impact of economic policy uncertainty (EPU) on the business models of UK banks from 2005 to 2019, a period marked by the Global Financial Crisis (GFC) and Brexit. The study identifies a non-linear relationship between EPU and the share of non-interest income: moderate increases in uncertainty encourage non-interest income activities, while extreme uncertainty leads banks to shift from diversification to traditional interest income activities. This reversal is primarily driven by improved regulatory oversight, with monetary policy playing a role only during the GFC but not in the context of Brexit. Similar to domestic EPU, European and global EPUs also exhibit a nonlinear relationship with non-interest income. General elections and a single-party majority in Parliament as political uncertainty factors do not significantly influence the bank business model. However, uncertainty arising from narrow vote margins and thus political competition, specifically between the Conservative and Labour parties, drives a strategic shift toward non-interest income. These findings offer valuable insights for bank managers, policymakers, and regulators in both the UK and other developed economies.