Bank Systemic Risk around COVID-19: A Cross-Country Analysis

Using 1,584 listed banks from 65 countries during the COVID-19 pandemic, we conduct the first broad-based international study examining the effect of the pandemic on bank systemic risk. We find the pandemic increases systemic risk across countries. The effect operates through government policy and bank default risk channels. Additional analysis suggests that the adverse effect of the pandemic on systemic stability is more pronounced for large, highly leveraged, riskier, high loan-to-asset, undercapitalized, and low network centrality banks. However, this effect is moderated by formal bank regulation (e.g., deposit insurance) and ownership structure (e.g., foreign and government ownership), and informal institutions (e.g., culture and trust).