Oil structural shocks, bank-level characteristics, and systemic risk: Evidence from dual banking systems

Aktham Maghyereh, Hussein Abdoh, Mohammad Al-Shboul

    Research output: Contribution to journalArticlepeer-review

    6 Citations (Scopus)

    Abstract

    By performing a structural VAR analysis on oil price shocks, we provide an evidence on how the origins of oil price shocks impact the risk level of banks in oil-exporting countries and whether bank-level characteristics can influence the sensitivity of risk to oil shocks. When conducting panel regression analysis, we document the following findings. First, not all shocks have the same effect on bank risk. Due to oil supply shocks, the increase in oil price raises bank risk, whereas the similar increase in price due to economic expansion or oil-market specific demand reduces that risk. Second, the business model (whether the bank is Islamic or conventional), size, income diversification, profitability, and financial leverage influence the bank risk exposure to oil shocks differently. Third, the two major recent crises (global financial crises and COVID-19 pandemic) magnified bank risk exposure to oil supply shocks and speculative oil demand shocks. Overall, the structural oil shocks explain a large fraction of the variation in financial stability in GCC countries.

    Original languageEnglish
    Article number101038
    JournalEconomic Systems
    Volume46
    Issue number4
    DOIs
    Publication statusPublished - Dec 2022

    Keywords

    • Bank risk
    • Bank-level characteristics
    • Financial stability
    • GCC countries
    • Global crises
    • Oil price shocks

    ASJC Scopus subject areas

    • Economics and Econometrics

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