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120 years of insight: Geopolitical risk and bank solvency

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  • Behn, Markus
  • Lang, Jan Hannes
  • Reghezza, Alessio

Abstract

What do 120 years of data say about the relationship between geopolitical risk and bank solvency? We find that a two standard deviation increase in a geopolitical risk index is associated with a decrease in the bank capital-to-asset ratio of around 0.2 percentage points. The effect is non-linear: only very high geopolitical risk leads to a sizeable decline in bank capitalisation, while more moderate increases of the index exert a negligible impact. This suggests that only major geopolitical events are likely to affect bank solvency to a degree that can endanger financial stability.

Suggested Citation

  • Behn, Markus & Lang, Jan Hannes & Reghezza, Alessio, 2025. "120 years of insight: Geopolitical risk and bank solvency," Economics Letters, Elsevier, vol. 247(C).
    • Handle: RePEc:eee:ecolet:v:247:y:2025:i:c:s0165176525000059
    DOI: 10.1016/j.econlet.2025.112168
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    Keywords

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    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions

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