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The impact of economic policy uncertainty on banks' non-interest income activities

Author

Listed:
  • Whelsy Boungou

    (Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - UB - Université de Bordeaux)

  • Charles Mawusi

    (BSE - Bordeaux Sciences Economiques - UB - Université de Bordeaux - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper investigates how banks adjust their business model amid rising global economic uncertainty. Specifically, we analyze the effect of economic policy uncertainty (EPU) on banks' non-interest income activities, using a large panel dataset of 3913 banks operating in 9 countries over the period 2009–2018. We find no statistically significant effect of EPU on banks' net non-interest income (NNII). Further analysis shows that the lack of impact on NNII is due to a reduction in gross non-interest income which was offset by a decrease in gross non-interest expenses. Our results also suggest that the likelihood of banks to diversify income amid high EPU is conditional on the negative interest rate environment.

Suggested Citation

  • Whelsy Boungou & Charles Mawusi, 2022. "The impact of economic policy uncertainty on banks' non-interest income activities," Post-Print hal-03520683, HAL.
    • Handle: RePEc:hal:journl:hal-03520683
    DOI: 10.1016/j.inteco.2021.12.003
    Note: View the original document on HAL open archive server: https://hal.science/hal-03520683
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    References listed on IDEAS

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    1. Boungou, Whelsy, 2020. "Negative interest rates policy and banks’ risk-taking: Empirical evidence," Economics Letters, Elsevier, vol. 186(C).
    2. James H. Stock & Mark W. Watson, 2012. "Disentangling the Channels of the 2007-09 Recession," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(1 (Spring), pages 81-156.
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    4. Boungou, Whelsy & Hubert, Paul, 2021. "The channels of banks’ response to negative interest rates," Journal of Economic Dynamics and Control, Elsevier, vol. 131(C).
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    8. Ghirelli, Corinna & Pérez, Javier J. & Urtasun, Alberto, 2019. "A new economic policy uncertainty index for Spain," Economics Letters, Elsevier, vol. 182(C), pages 64-67.
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    11. Whelsy Boungou & Charles Mawusi, 2023. "Bank lending margins in a negative interest rate environment," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 886-901, January.
    12. Yinghua Ren & Qing Guo & Huiming Zhu & Wanming Ying, 2020. "The effects of economic policy uncertainty on China’s economy: evidence from time-varying parameter FAVAR," Applied Economics, Taylor & Francis Journals, vol. 52(29), pages 3167-3185, June.
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    15. Whelsy Boungou & Charles Mawusi, 2021. "Economic Policy Uncertainty and Banks' Interest Income: Empirical Evidence from an International Panel Dataset," Economics Bulletin, AccessEcon, vol. 41(3), pages 2003-2011.
    16. Armelius, Hanna & Hull, Isaiah & Stenbacka Köhler, Hanna, 2017. "The timing of uncertainty shocks in a small open economy," Economics Letters, Elsevier, vol. 155(C), pages 31-34.
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    18. James H. Stock & Mark W. Watson, 2012. "Disentangling the Channels of the 2007-2009 Recession," NBER Working Papers 18094, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Whelsy Boungou & Charles Mawusi, 2021. "Economic Policy Uncertainty and Banks' Interest Income: Empirical Evidence from an International Panel Dataset," Economics Bulletin, AccessEcon, vol. 41(3), pages 2003-2011.
    2. Ozili, Peterson K & Arun, Thankom, 2022. "Does economic policy uncertainty affect bank profitability?," MPRA Paper 114403, University Library of Munich, Germany.

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    More about this item

    Keywords

    Economic policy uncertainty; Bank diversification; Negative interest rate environment;
    All these keywords.

    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
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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