Banking Sector Resilience to Major Crises

Abstract

The Covid-19 crisis, started as an endemic health crisis but it was rapidly transformed to a global pandemic. As expected, it did not leave the global economy unaffected. The prolonged interruption of the production activity and the relevant general lockdowns, led to a significant drop in production, consumption and employment. This rapid deterioration of the economic activity and the associated increase in the uncertainty for the day-after, led to a significant decline of major stock markets around the globe. Banking institutions are fighting their own battle to continue their operation uninterrupted during the pandemic. Their problem is twofold: from one hand to deal with the decline in economic activity and on the other to adapt to a new and externaly imposed model of distance-banking. In this paper, we examine the possible impact of the Covid-19 crisis on bank share prices worldwide. We also measure and compare the impact of the 2008 global financial crisis. In measuring the impact of these two crises on bank share prices, we used bank share indices from four alternative countries: Greece, Germany, the US, and China for the period 2004:1 – 2021:2. The macroeconomic variables used in this context are: exchange rates, country specific 10-year government bond interest rates, the industrial production index and inflation, all in monthly frequency. Based on the empirical results, bank shares appear, in general, resilient and unaffected by these two crises.