THE EFFECT OF COVID-19 ON THE STABILITY OF THE FINANCIAL INDUSTRY

Abstract

Objective: The main aim of this study is to investigate how natural disasters and epidemics impact the ability of banks and insurance companies to maintain financial strength and stability.   Theoretical Framework: The theoretical framework of this study is centered around defining financial stability and exploring the potential impacts of natural disasters and epidemics on the financial stability of banks and insurance companies. This research also examines strategies these institutions can employ to mitigate the risks associated with natural disasters and epidemics.   Method: This study employs a fixed effects model to estimate and assess the impact of natural disasters and epidemics using z-scores and SRISK. The utilized dataset encompasses information regarding natural disasters, epidemics, and financial data for banks and insurance companies.   Results and Discussion: The research results suggest that natural disasters have a limited impact on the financial stability of banks, as demonstrated by z-score and SRISK analyses. Moreover, the extent of this impact varies depending on the type of disaster and the geographical location of the company.   Research Implications: The study provides new insights into how natural disasters and epidemics affect financial stability in banks and insurance companies. Using quantitative analysis, helps policymakers develop strategies to reduce risks from these events. It also advises banks and insurers to adopt practical measures such as portfolio diversification and risk management tools. Additionally, the study highlights the importance of financial stability during such events, emphasizing the pivotal role of banks and insurers. It calls on policymakers and regulators to ensure preparedness in managing related risks.   Originality/Value: This study employs z-scores and SRISK to compare the effects of natural disasters and epidemics on the financial stability of both banks and insurance companies. The value of this research lies in providing insights into the risks and challenges that arise from natural disasters and epidemics for the financial sector.