Understanding Bank-Level Uncertainty: New insights into banking activity and its macroeconomic impacts

This study measures a text-based Bank-Level Uncertainty (BLU) index to examine how uncertainty impacts banking activities and macroeconomic outcomes. Using quarterly earnings calls from US Bank Holding Companies (2001:Q1–2022:Q4), BLU is developed to capture four exogenous shocks: regulatory changes, natural disasters, pandemics, and wars & terrorist attacks. Keywords associated with these shocks, combined with “risk” and “uncertainty” terms, are used to construct category-specific and overall uncertainty measures. Findings show that higher values of BLU reduce bank liquidity creation, loan issuance, and stock returns, while increasing liquidity holdings. A structural vector autoregressive (SVAR) analysis further reveals that higher BLU lowers national output, employment, and price levels while increasing policy uncertainty. By highlighting the distinctiveness of BLU compared to existing uncertainty indexes, this research underscores the importance of tailored metrics in understanding sector-specific uncertainty, providing valuable insights for policymakers and financial institutions to enhance resilience.