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Economic volatility, banks’ risk accumulation and systemic risk

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  • He, Wenjia
  • He, Wenjing
  • Xu, Dandan
  • Yue, Pengpeng

Abstract

Preventing systemic risk from the perspective of bank risk accumulation has been widely researched and supported. This study focuses on the impact of economic volatility on bank risk accumulation and systemic risk. Using the proportion of non-core liabilities as the bank’s risk accumulation index, we show that low economic volatility increases bank risk accumulation but decreases systemic risk. However, banks with a higher risk accumulation in a period of low economic volatility will have a greater increase in systemic risk in periods of high economic volatility. Our study is significant for forward-looking systemic risk prevention.

Suggested Citation

  • He, Wenjia & He, Wenjing & Xu, Dandan & Yue, Pengpeng, 2023. "Economic volatility, banks’ risk accumulation and systemic risk," Finance Research Letters, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:finlet:v:57:y:2023:i:c:s1544612323004877
    DOI: 10.1016/j.frl.2023.104115
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    More about this item

    Keywords

    Economic volatility; Non-core liabilities; Risk accumulation; Systemic risk;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • B26 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Financial Economics
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets

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