Work

Political stability, geopolitical risks, and bank stability

Year: 2025

Type: article

Abstract: • This study introduces the concept of foundational risks in banking stability analysis • The Political stability and geopolitical risks exert asymmetric effects on bank soundness • Foundational risks amplify fragility among vulnerable banks without systemic collapse • The findings offer guidance for targeted resilience strategies in developing economies Banking fragility in developing countries often stems from political instability and geopolitical risks. Referring collectively to both risks as foundational risks, this paper examines the impact of these risks on bank stability in developing countries. We employ panel quantile regressions and uncover that foundational risks exert asymmetric effects across the distribution of bank soundness. An increase in political stability and a reduction in geopolitical risks significantly strengthen banks’ resilience, particularly among the most vulnerable banks. Moreover, a rise in foundational risks intensifies fragility without triggering systemic collapse. These findings offer a fresh perspective for regulators seeking targeted resilience strategies in uncertain political and geopolitical landscapes.

Source: Finance research letters

DOI: 10.1016/j.frl.2025.108889

Authors: Mert Topcu, Ufuk Can

Institutions: Alanya Alaaddin Keykubat Üniversitesi, Australian National University, Central Bank of the Republic of Turkey

Language: English

Topic: Banking stability, regulation, efficiency

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Peace, justice, and strong institutions

Open Access status: hybrid

Estimated APC paid: $3,730