U.S. interbank risk spillover network: Temporal dynamics and external shocks

This study develops an interbank risk spillover framework using a dynamic Bayesian network and wavelet local multiple correlation to analyze the relationship between spillover risk, geopolitical risk, and economic policy uncertainty. We demonstrate that risk spillovers tend to cluster regionally and shift in response to market conditions. During 2019–2021, spillover risk surged, reflecting the pandemic’s disruptions. Strong correlations persist over time, while short-term market sensitivity to economic policy and geopolitical events increases. These findings underscore the need for stricter oversight of regional banking networks, tighter capital and liquidity rules for key banks, and more effective expectation management during periods of uncertainty.