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Understanding Bank-Level Uncertainty: New insights into banking activity and its macroeconomic impacts

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  • Murad, S.M. Woahid
  • Pathan, Shams
  • Durand, Robert B.
  • Zheng, Chen

Abstract

This study measures a text-based Bank-Level Uncertainty (BLU) index to examine how uncertainty impacts banking activities and macroeconomic outcomes. Using quarterly earnings calls from US Bank Holding Companies (2001:Q1–2022:Q4), BLU is developed to capture four exogenous shocks: regulatory changes, natural disasters, pandemics, and wars & terrorist attacks. Keywords associated with these shocks, combined with “risk” and “uncertainty” terms, are used to construct category-specific and overall uncertainty measures. Findings show that higher values of BLU reduce bank liquidity creation, loan issuance, and stock returns, while increasing liquidity holdings. A structural vector autoregressive (SVAR) analysis further reveals that higher BLU lowers national output, employment, and price levels while increasing policy uncertainty. By highlighting the distinctiveness of BLU compared to existing uncertainty indexes, this research underscores the importance of tailored metrics in understanding sector-specific uncertainty, providing valuable insights for policymakers and financial institutions to enhance resilience.

Suggested Citation

  • Murad, S.M. Woahid & Pathan, Shams & Durand, Robert B. & Zheng, Chen, 2025. "Understanding Bank-Level Uncertainty: New insights into banking activity and its macroeconomic impacts," International Review of Economics & Finance, Elsevier, vol. 102(C).
    • Handle: RePEc:eee:reveco:v:102:y:2025:i:c:s1059056025004216
    DOI: 10.1016/j.iref.2025.104258
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    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • 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

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