Geopolitical risk and bank stability

In this paper, we present evidence supporting our hypothesis that geopolitical risk hurts bank stability. Using annual bank stability, bank-specific, macroeconomic, and geopolitical risk datasets, we show that an increase in geopolitical risk is associated with a decline in bank stability. This finding is robust to different geopolitical risk and bank stability measures, removing the period of extreme financial events, excluding banks with less than ten years of data, potential endogeneity issues, and controlling for other risk factors. Our results also emphasize the role of holding capital and bank size in attenuating the destabilizing effect of geopolitical risk.