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Lookup NU author(s): Dr Vu TrinhORCiD, Rosie Cao, Professor Marwa ElnahassORCiD
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License (CC BY-NC 4.0).
This study examines the association between bank tail risk and the ongoing COVID-19 pandemic. We use a sample of 868 listed banks across 98 countries from 2002 to 2020, yielding a cross-country panel sample of 15,791 bank-year observations. We find that different components of bank tail risk (i.e., systematic and idiosyncratic) have increased during the health crisis but less so for stronger banks (i.e., more profitable, higher market valuation, lower stock volatility). The result implies that the pandemic results in a higher possibility of suffering extremely large losses in the stock prices of the global banking sector. However, banks with higher profitability and financial stability levels can better prepare themselves to tackle the crisis more effectively and hence are less likely to suffer extreme equity devaluations. Therefore, we contend that financial stability acts as a ‘vaccine’ for the bank tail risk in the shadow of the pandemic. We finally confine the results to some specific geographic settings; typically, they are more intensified in countries with more financial freedom, middle income-generating, and large banks.
Author(s): Trinh VQ, Cao ND, Elnahass M
Publication type: Article
Publication status: Published
Journal: European Journal of Finance
Year: 2023
Volume: 29
Issue: 7
Pages: 726-753
Online publication date: 30/05/2022
Acceptance date: 03/05/2022
Date deposited: 03/05/2022
ISSN (print): 1351-847X
ISSN (electronic): 1466-4364
Publisher: Taylor and Francis
URL: https://doi.org/10.1080/1351847X.2022.2081091
DOI: 10.1080/1351847X.2022.2081091
ePrints DOI: 10.57711/e4y4-8c84
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