Chen, Z.; Rahat, B.; Su, C.W. & Achim, M.V. (In press) Research in International Business and Finance [Core Economics, Q1]

Publicat: 20 Mai 2026

Chen, Z.; Rahat, B.; Su, C.W. & Achim, M.V. (In press) Solvency and provisioning under aggressive monetary tightening: Bank risk responses to policy shocks. Research in International Business and Finance

DOI: http://doi.org/10.1016/j.ribaf.2026.103482

✓ Publisher: Elsevier
✓ Categories: Business, Finance
✓ Article Influence Score (AIS): 0.974 (2024) / Q1


Abstract:
This study examines how the recent tightening of ECB policy rates impacts bank risk. We focus on two complementary indicators, the Z-score and the cost of risk. The Z-score reflects solvency, while the cost of risk captures changes in loan loss provisioning. Using a sample of euro area banks, we show that solvency weakens and provisioning increases during the tightening phase. We observe that this adjustment is not uniform across institutions. Banks with stronger capital experience less impact, whereas banks with more credit-intensive portfolios respond more vigorously to changes in repayment conditions. Higher liquidity and profitability reduce the impact, while loan expansion increases it. These results highlight how balance sheet structure shapes the transmission of monetary policy. The findings are relevant for how banks manage solvency and monitor credit portfolios during periods of rising policy rates.

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