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How does economic policy uncertainty affect bank business models?

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  • Tran, Dung Viet
  • Hoang, Khanh
  • Nguyen, Cuong

Abstract

Investigating the impact of economic policy uncertainty (EPU) on banks’ business activities using a large sample of U.S. banks during 2000–2017, we find that banks are more likely to diversify their income stream into new activities generating non-interest income amid high EPU. The results indicate that EPU on CPI and bank M&A has no impact on banks’ decisions about non-interest income activities (NIIA) and, notably, small and medium banks increase their NIIA when EPU is elevated, whereas large banks do not. Importantly, EPU related to government spending has the highest impact on banks’ business activities, followed by news-based EPU.

Suggested Citation

  • Tran, Dung Viet & Hoang, Khanh & Nguyen, Cuong, 2021. "How does economic policy uncertainty affect bank business models?," Finance Research Letters, Elsevier, vol. 39(C).
    • Handle: RePEc:eee:finlet:v:39:y:2021:i:c:s1544612320303032
    DOI: 10.1016/j.frl.2020.101639
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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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