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Purpose <p>This study examines how global economic policy uncertainty (GEPU) transmits through banking systems and how institutional and financial buffers jointly determine their resilience. It introduces the “Enabling Buffer Channel” (EBC) framework, which highlights the complementarity between institutional quality and prudential buffers in shaping systemic stability. By improving understanding of how institutions and capital buffers interact to sustain financial resilience, the study contributes to the United Nations Sustainable Development Goals (SDGs), particularly SDG 8 (Decent Work and Economic Growth), SDG 9 (Industry, Innovation and Infrastructure), and SDG 16 (Peace, Justice and Strong Institutions), thereby enhancing sustainable financial systems.</p> Design/methodology/approach <p>A two-stage structural–machine learning framework integrating Panel VAR (PVAR) and Double Machine Learning (DML) is employed on a dataset of 91 countries from 2008 to 2023. In the first stage, XGBoost-based counterfactual simulations estimate the causal “damage” of GEPU shocks on non-performing loans (NPL) and return on assets (ROA). In the second stage, Causal Forests within the DML framework quantify heterogeneity in shock absorption as a function of institutional quality (EQ), capitalization (CAP), and liquidity (LIQ).</p> Findings <p>Results reveal that GEPU shocks adversely affect banking performance, with effects concentrated in low- and middle-income economies. Both institutional and financial buffers mitigate these effects, but the stabilizing role of CAP and LIQ becomes statistically significant only under strong institutional conditions, providing empirical evidence consistent with the EBC hypothesis. Institutional strength is associated with stronger effectiveness of financial buffers in stabilizing banking outcomes, thereby fostering more resilient and sustainable financial systems aligned with the SDGs.</p> Practical implications <p>The findings underscore that prudential policies are not universally effective; their success depends on the institutional environment. Context-sensitive regulatory frameworks are essential for enhancing resilience under global uncertainty.</p> Originality/value <p>This study is among the first to integrate structural modeling and causal machine learning to empirically identify institutional–financial complementarity, advancing a new paradigm for understanding global banking stability.</p>

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Integrating structural and machine learning approaches to assess bank stability through the enabling buffer channel

  • 期刊论文

  • 出版模式：

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  • 发表日期：

    2026年5月24日

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  • Thuy Tu Pham

摘要

Purpose

This study examines how global economic policy uncertainty (GEPU) transmits through banking systems and how institutional and financial buffers jointly determine their resilience. It introduces the “Enabling Buffer Channel” (EBC) framework, which highlights the complementarity between institutional quality and prudential buffers in shaping systemic stability. By improving understanding of how institutions and capital buffers interact to sustain financial resilience, the study contributes to the United Nations Sustainable Development Goals (SDGs), particularly SDG 8 (Decent Work and Economic Growth), SDG 9 (Industry, Innovation and Infrastructure), and SDG 16 (Peace, Justice and Strong Institutions), thereby enhancing sustainable financial systems.

Design/methodology/approach

A two-stage structural–machine learning framework integrating Panel VAR (PVAR) and Double Machine Learning (DML) is employed on a dataset of 91 countries from 2008 to 2023. In the first stage, XGBoost-based counterfactual simulations estimate the causal “damage” of GEPU shocks on non-performing loans (NPL) and return on assets (ROA). In the second stage, Causal Forests within the DML framework quantify heterogeneity in shock absorption as a function of institutional quality (EQ), capitalization (CAP), and liquidity (LIQ).

Findings

Results reveal that GEPU shocks adversely affect banking performance, with effects concentrated in low- and middle-income economies. Both institutional and financial buffers mitigate these effects, but the stabilizing role of CAP and LIQ becomes statistically significant only under strong institutional conditions, providing empirical evidence consistent with the EBC hypothesis. Institutional strength is associated with stronger effectiveness of financial buffers in stabilizing banking outcomes, thereby fostering more resilient and sustainable financial systems aligned with the SDGs.

Practical implications

The findings underscore that prudential policies are not universally effective; their success depends on the institutional environment. Context-sensitive regulatory frameworks are essential for enhancing resilience under global uncertainty.

Originality/value

This study is among the first to integrate structural modeling and causal machine learning to empirically identify institutional–financial complementarity, advancing a new paradigm for understanding global banking stability.