Download This PaperGeopolitical risk premia in the European banking sector
55 Pages Posted:
Date Written: March 31, 2025
Abstract
This paper investigates the risks to financial stability stemming from the geopolitical risk materialised with the outbreak of the Russia-Ukraine war, finding evidence of geopolitical risk premia in European banks' debt and equity markets. Banks with higher direct credit exposures to Russia, more branches located in afflicted areas, and more investments in energy-intensive corporations experienced higher funding costs, lower stock returns, increased stock price volatility and higher CDS prices throughout 2022. Further, sanctions' announcements were generally associated with lower abnormal returns for more exposed banks. The identified channels of contagion require careful monitoring as geopolitical tensions spread across the globe.
Keywords: Geopolitical risk, Russia-Ukraine war, Banking, Bank Performance, Funding cost, Stock returns
JEL Classification: G15, G21, H56
Suggested Citation: Suggested Citation
