Impact of <scp>COVID</scp>‐19 Pandemic on Asia‐Pacific Banks

The outbreak of the Coronavirus (COVID‐19) pandemic led to global economic consequences. This paper measures the dynamics of spillover effects before and during the COVID‐19 pandemic among Asia‐Pacific banks. Spillover effects provide an accurate representation of the transmission of shocks across financial institutions during adverse events, such as the COVID‐19 pandemic. We apply the Diebold‐Yilmaz spillover index to investigate the impact of COVID‐19 on spreading shocks in the banking system. We consider the interactions of the 50 largest banks in the Asia‐Pacific region over the period 1 January 2018 to 18 November 2021. The empirical results show varying patterns of spillover before and during the COVID‐19 pandemic. The total spillovers intensify following the COVID‐19 outbreak. Total spillovers decreased after governments adopted measures to mitigate the spread of COVID‐19, including lockdowns, social distancing, wearing face masks, and vaccinations. This shows that the COVID‐19 pandemic led to an increase in systemic risk. Caution needs to be put in place to monitor these banks to reduce instability in the banking sector.