Economic Policy Uncertainty in Banking

Abstract

This chapter is a survey of the most important research in the economic policy uncertainty literature. Economic policy uncertainty, although still under-researched relative to mainstream topics in economics and finance, has recently received increased scholarly attention. Through synthesizing common themes in the literature, the chapter highlights the progress made so far and suggests some avenues for future research that allow future researchers to position their research and differentiate themselves from other studies in the literature. The chapter finds that economic policy uncertainty affects banks through a reduction in credit supply and loan re-pricing. High economic policy uncertainty compels bank managers to discretionary distortion of bank financial reporting in ways that help them to mitigate the depressing effect of economic policy uncertainty on banks' financial statements.