Geopolitical Risk and Domestic Bank Deposits

ABSTRACT We investigate the relationship between global geopolitical risk and bank deposit flows across a wide panel of European countries. Motivated by the pivotal role of deposit stability for financial intermediation and systemic resilience, we explore whether geopolitical shocks alter depositors’ portfolio choices. Using quarterly country‐level data and employing the geopolitical risk (GPR) index of Caldara and Iacoviello, along with its subindices (GPR Acts and GPR Threats), we document that rising global geopolitical risk significantly increases aggregate bank deposit flows. This positive relation is channeled through a reallocation from riskier assets to deposits. Our findings suggest that bank deposits act as a safe‐haven asset during heightened global tensions, complementing the flight‐to‐safety phenomenon documented in sovereign bond markets. The results have important implications for financial stability analysis, monetary policy transmission, and banks’ liquidity risk management under geopolitical stress.