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Geopolitical risks and cross-border allocation of bank capital

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  • Zhou, Ye
  • Zhang, Wenbo
  • Ma, Tianhao

Abstract

This study investigates how country-specific geopolitical risks (CS_GPR) shape cross-border bank capital allocation. We document that CS_GPR significantly reduces other economies' claims on the home economy while expanding their liability exposure to it. The reduction in claims manifests in both the banking and non-financial corporate sectors of the home economy, while the increase in liabilities is concentrated in the banking sector, appearing as capital outflows from both domestic and overseas banks. Heterogeneity analysis indicates that the impact of CS_GPR on bank capital allocation is most pronounced in emerging and low-openness economies.

Suggested Citation

  • Zhou, Ye & Zhang, Wenbo & Ma, Tianhao, 2026. "Geopolitical risks and cross-border allocation of bank capital," Economics Letters, Elsevier, vol. 265(C).
    • Handle: RePEc:eee:ecolet:v:265:y:2026:i:c:s0165176526002065
    DOI: 10.1016/j.econlet.2026.113012
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