Political Uncertainty and Bank Liability Structures - Cross-country Evidence from Brexit : An empirical analysis of bank funding maturity adjustments to a political uncertainty shock

Details

Supervisors

Candelon, Bertrand

Faculty

Louvain School of Management

Degree label

Master [120] : ingénieur de gestion, à finalité spécialisée

Abstract

enThis paper examines how rising political uncertainty affects the liability maturity structure of commercial banks, using Brexit as a case study within a cross-country panel framework. To test the research question, regression analyses are conducted across multiple countries, including specifications with country-specific effects and a scaled EPU variable capturing relative changes before and after the referendum. Liability maturity is proxied using three different measures: long-term borrowings and debt securities at historical cost > 1 year divided by total liabilities, customer deposits divided by total liabilities and wholesale funding divided by total liabilities. The results indicate that Brexit led banks in both the United Kingdom and the European Union to adjust their funding structures, increasing reliance on more stable deposit-based funding relative to long-term debt and wholesale funding. While the overall effects are moderate, the shift toward customer deposits is more pronounced for UK banks. These findings suggest precautionary behavior in response to heightened political and economic uncertainty, particularly regarding potential disruptions in cross-border financial markets. Overall, the results highlight the role of political uncertainty in shaping bank funding strategies and contribute to a better understanding of how external shocks influence financial stability.