Geopolitical Risk and Bank Stability in the MENA Region: The Moderating Role of Diversification and Financial Flexibility
研究了2007至2023年间107家MENA地区银行的数据，发现地缘政治风险会显著降低银行稳定性，但银行的多元化和财务灵活性可以缓冲这种负面影响。
ABSTRACT We investigate the impact of geopolitical risk on bank stability in the Middle East and North Africa (MENA) region. We further examine how internal strategic factors—namely, bank diversification and financial flexibility—moderate this relationship, potentially serving as buffers against external political shocks. Using a balanced panel of 107 listed MENA banks from 2007 to 2023, comprising 1819 bank‐year observations, we employ panel corrected standard error (PCSE) and robustness checks. It utilises both accounting‐based (Z‐score and NPL) and market‐based (distance‐to‐default and long‐term earnings volatility) indicators of bank stability. We incorporate the Caldara and IacovielloGeopolitical Risk Index and its growth rate to capture both level and momentum effects of geopolitical risks. The findings demonstrate a statistically significant negative relationship between geopolitical risk and bank stability. However, banks with higher levels of diversification and financial flexibility are more resilient to geopolitical shocks, highlighting their moderating role in turbulent geopolitical environments. We further conduct additional tests showing that asset diversification partially and complementarily mediates the adverse effect of geopolitical risk on bank stability. Robustness analyses reveal that strong institutional governance provides critical buffers that enable banks to absorb geopolitical shocks and sustain financial stability. Moreover, crisis‐specific tests indicate that global and regional shocks (e.g., global financial crisis, Arab Spring, COVID‐19 and Russia–Ukraine War) significantly intensify the negative GPR–stability relationship. Geopolitical risk erodes bank stability, particularly in weakly governed and resource‐dependent economies, highlighting banks' heterogeneous vulnerability to external shocks. This paper emphasises the importance of internal strategic buffers in regions prone to political volatility and provides actionable insights for bank executives, regulators and policymakers.