Anatomy of a fall: Economic policy uncertainty and foreign income in large European banks
Journal of International Financial Markets, Institutions and Money, cilt.104, 2025 (SSCI, Scopus)
- Yayın Türü: Makale / Tam Makale
- Cilt numarası: 104
- Basım Tarihi: 2025
- Doi Numarası: 10.1016/j.intfin.2025.102206
- Dergi Adı: Journal of International Financial Markets, Institutions and Money
- Derginin Tarandığı İndeksler: Social Sciences Citation Index (SSCI), Scopus, ABI/INFORM, EconLit
- Anahtar Kelimeler: Policy uncertainty, Geographic diversification, European banking, Income diversification, Bank foreign income
- Kırklareli Üniversitesi Adresli: Evet
Özet
This paper examines the relationship between domestic economic policy uncertainty (EPU) and the foreign income ratio of large European banks. Using a hand-collected dataset, we find that large European banks reduce their foreign income ratio when domestic EPU increases. We also find evidence that this inverse relationship is driven by banks’ home bias, the flight-to-home effect, the follow-the-customer strategy, and product diversification. Banking regulation is another key factor contributing to the reduction of banks’ foreign income. Foreign income also declines during periods of high financial stress and stock price volatility, which signals an environment of uncertainty. These findings provide critical insights for regulators and financial institutions on the importance of macroeconomic stability and effective regulation in maintaining robust international banking operations.