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<p>Drawing on a comprehensive dataset of 760 banks across 27 countries from 2000 to 2022, this study demonstrates that uncertainty significantly undermines banking stability. Employing Panel Fixed effect, 2SLS, and Panel Methods of Moments Quantile Regression, the analysis provides robust and consistent evidence of this negative relationship. Our findings indicate that 1% increase in global economic policy uncertainty could reduce bank stability (<i>Z</i>score) by up to 0.357 units. The adverse effect of uncertainty is more pronounced at the upper quantile, indicating that the impact is greater at the higher bound compared to the lower bound. Bank size plays a critical role in shaping vulnerability to uncertainty as the smallest banks in the sample are affected most severely. The destabilizing influence of uncertainty intensifies during crisis periods, amplifying systemic risk. Interestingly, banks with higher capital buffers experience greater sensitivity to uncertainty, reflecting a paradox where defensive capital hoarding constrains profitability and operational flexibility. However, macroprudential policy emerges as an effective shock absorber, mitigating these adverse effects and reinforcing systemic resilience. These findings underscore the importance of proactive, well-calibrated macroprudential frameworks in safeguarding financial stability under heightened policy uncertainty, offering actionable insights for regulators and bank management.</p>

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From uncertainty to banking instability: global evidence

  • 期刊论文

  • 发表日期：

    2026年3月10日

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  • Md Hakim Ali,
  • Md Akther Uddin,
  • Md Arifur Rahman,
  • Mohammad Kabir Hassan

摘要

Drawing on a comprehensive dataset of 760 banks across 27 countries from 2000 to 2022, this study demonstrates that uncertainty significantly undermines banking stability. Employing Panel Fixed effect, 2SLS, and Panel Methods of Moments Quantile Regression, the analysis provides robust and consistent evidence of this negative relationship. Our findings indicate that 1% increase in global economic policy uncertainty could reduce bank stability (Zscore) by up to 0.357 units. The adverse effect of uncertainty is more pronounced at the upper quantile, indicating that the impact is greater at the higher bound compared to the lower bound. Bank size plays a critical role in shaping vulnerability to uncertainty as the smallest banks in the sample are affected most severely. The destabilizing influence of uncertainty intensifies during crisis periods, amplifying systemic risk. Interestingly, banks with higher capital buffers experience greater sensitivity to uncertainty, reflecting a paradox where defensive capital hoarding constrains profitability and operational flexibility. However, macroprudential policy emerges as an effective shock absorber, mitigating these adverse effects and reinforcing systemic resilience. These findings underscore the importance of proactive, well-calibrated macroprudential frameworks in safeguarding financial stability under heightened policy uncertainty, offering actionable insights for regulators and bank management.