Energy shocks and bank performance in the advanced economies

Nasim, Asma and Downing, Gareth (2023) Energy shocks and bank performance in the advanced economies. Energy Economics, 118. 106517. ISSN 0140-9883

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Abstract

This paper investigates the effects of energy price shocks on the performance of 62 major banks in the G7 advanced economies from 2001 to 2020. Employing numerous empirical techniques, including fixed effects, random effects, panel fully modified least squares, panel dynamic least squares, and GMM, the findings show that energy price shocks have a significant negative impact on banking sector performance, in terms of both return on assets and return on equity. This result holds true even after controlling for a range of key macro and financial variables, suggesting energy price shocks can have a direct impact on banking performance. Given the importance of banks for both financial stability and wider economic performance, and given the recent surge in energy prices, these findings have important implications for policymakers, regulators, as well as banking sector stakeholders.