Geopolitical risks and the banking sector

Grébel, Szabolcs and Pesuth, Tamás (2024) Geopolitical risks and the banking sector. ECONOMY AND FINANCE: ENGLISH-LANGUAGE EDITION OF GAZDASÁG ÉS PÉNZÜGY, 11 (2). pp. 164-186. ISSN 2415-9379

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Abstract

Geopolitical risks have come into the foreground recently as their effects on macroeconomy are analysed. This said, the banking sector is key due to its embeddedness in the economy and because risk management is an important part of the stability of financial systems. Banking regulations have quantified different types of risks over the past decades, but several types of risks can be considered in the model side by side with economic changes. One experiences the highest number of obstacles in preparing for risks that, one the one hand, are difficult to measure and, on the other hand, occur relatively infrequently but may exert a major impact on individual businesses or for the whole economy. Geopolitical risks belong to that group. In this paper, we survey the most significant geopolitical risks of the modern age and examine the corporate reports of banks in the US, Europe, and Asia to analyse the occurrence of terms relating to geopolitics. Then, we attempt to build an index which can help compare the regions more. Risk indexes have been on the rise recently following the conflicts of the past years. The risk index formed from corporate reports also correlates with geopolitical indexes found in other types of the literature.

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