Do macroeconomic uncertainty factors cause banking instability? Evidence from an emerging economy

The study examines whether instability in macroeconomic factors, such as economic growth, inflation, and money supply, causes Vietnamese commercial banks to be unstable. The OLS regression method only gives a result showing the positive or negative impact of the independent variable on the dependent variable. However, with quantile regression, the bank stability level is divided into many small quantiles, and for each quantile, there is a regression function. The quantile regression results show that GDP growth uncertainty negatively affects banking stability at low quantiles of bank stability; however, in the high quantiles, GDP growth uncertainty has an insignificant impact on bank stability. The results imply that the more volatile the economic growth is, the more unstable the bank will be if banks have low stabilization. However, if banks have high stability, economic growth uncertainty does not affect banking stability. The results of money supply M2 uncertainty impact on bank stability are similar to GDP growth uncertainty. Moreover, high inflation uncertainty reduces bank stability in most of the quantiles of the bank stability.