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Geopolitical Risk, Cost of Equity, and Bank Lending: Evidence From the Ukrainian War

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  • Emiel Sanders

  • Rudi Vander Vennet

Abstract

How does geopolitical risk affect banks and their lending behavior? Using the attack of Russia on Ukraine in February 2022 as an unanticipated geopolitical risk event and exploiting the syndicated loan exposures of European banks, we document that Russia-exposed banks experience a more pronounced increase of their cost of equity compared to banks with limited Russian lending exposure. In a difference-in-differences setup, we find that Russia-exposed banks significantly curtail their syndicated lending and that this contraction is most pronounced for lending to new borrowers and unsecured loans. We find no relationship between (changes in) the cost of equity of banks and their credit supply. We conclude that geopolitical risk shocks affect banks’ risk profiles and may cause a contraction in lending. Hence, geopolitical risk is a relevant concern for bank supervisors.

Suggested Citation

  • Emiel Sanders & Rudi Vander Vennet, 2025. "Geopolitical Risk, Cost of Equity, and Bank Lending: Evidence From the Ukrainian War," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 25/1122, Ghent University, Faculty of Economics and Business Administration.
    • Handle: RePEc:rug:rugwps:25/1122
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    File URL: http://wps-feb.ugent.be/Papers/wp_25_1122.pdf
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    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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