The Federal Reserve Board published a research note examining how geopolitical risk affects U.S. bank stock prices. It finds that bank stocks, on average, move broadly in line with the wider equity market during geopolitical shocks, but the effect varies materially across institutions. Banks with weaker earnings, smaller liquidity buffers, and larger operations in geopolitically stressed foreign markets show larger equity declines. Using the KBW Bank Index and a sample of 38 large U.S. banks, the note estimates that a one standard deviation increase in the global geopolitical risk index is associated with roughly a 0.1 percentage point fall in bank stock prices when considered on its own, with stronger effects during the Global Financial Crisis, the European Sovereign Debt Crisis, and the COVID-19 pandemic. Once S&P 500 returns are included, the average effect on the banking sector becomes small and statistically insignificant. Cross-bank differences are strongest among the 13 largest banks with more than USD 200 billion in average assets. For those firms, higher return on average assets and larger liquid-asset ratios are each associated with about a 3 basis point smaller decline between banks at the 90th and 10th percentiles of those measures, while larger trading asset shares and higher bank-specific geopolitical risk based on the geography of foreign operations are each associated with about a 3 basis point larger decline. Foreign claims share is linked to about a 2 basis point larger decline, capital ratios do not systematically explain sensitivity, and the non-performing loan effect is not statistically significant.
Federal Reserve Board2026-06-02
United States Federal Reserve Board research finds large U.S. banks with weaker earnings lower liquidity and stressed foreign exposure face larger equity declines from geopolitical shocks
The Federal Reserve Board published research on how geopolitical risk affects U.S. bank stock prices, finding that bank equities generally move with the broader market during geopolitical shocks and that the standalone effect of higher global geopolitical risk becomes statistically insignificant once S&P 500 returns are controlled for. The note reports larger declines for banks with weaker earnings, smaller liquidity buffers, larger trading books, and greater exposure to geopolitically stressed foreign markets, with differences most pronounced among the 13 largest institutions with more than USD 200 billion in average assets.