The role of uncertainty, regulatory and economic environment and quantitative tightening in banks’ performance

Nasim, Asma ORCID: https://orcid.org/0000-0002-3521-5584, Nasir, Muhammad Ali and Downing, Gareth ORCID: https://orcid.org/0000-0003-1325-0810 (2025) The role of uncertainty, regulatory and economic environment and quantitative tightening in banks’ performance. International Journal of Finance and Economics. ISSN 1076-9307 (In Press)

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Abstract

This study analyses the implications of uncertainty, the regulatory and economic environment, and the monetary policy regime for bank performance. Employing multiple indicators of bank performance and underlying explanatory factors, we used a novel set of empirical approaches including Fixed Effects, Random Effects, Panel Fully Modified Least Squares (FMOLS), Panel Dynamic Least Squares (DOLS), and the Generalized Method of Moments (GMM). Considering the data of both developed (G7) and emerging (E7) economies from 2001 to 2020, our results reveal that uncertainty, leverage, capital adequacy, monetary policy, economic growth, inflation and the exchange rate have significant implications for various aspects of bank performance. We also find significant differences between the developed and developing economies’ banking sector performance. In the context of uncertainty, the findings have vital implications for the banking sector in emerging and advanced economies, monetary and prudential policymakers, and stakeholders of financial stability.