Spill over effects of Geopolitical risk on the banking sector of CIS countries

Abstract

This study examines the spill over effects of geopolitical risks (GPR) and extreme shocks on Commonwealth of Independent States (CIS) economies, as result of the Russia – Ukraine war, with particular focus on financial institutions. Further, we investigate whether the performance of CIS banks has been impacted by economic sanctions imposed on Russia since the start of the conflict. Understanding GPR transmission mechanisms and consequences on Russia’s neighbouring countries allows policymakers and financial institutions to formulate and implement risk management strategies. For a global measure of geo-political risk, we employ the global GPR index from Caldara and Iacoviello (2022) and we use the Diebold-Yilmaz (2012) connectedness model to estimate the spill over effect. First, we investigate the spill over effect of the recent conflict on the returns of banks for a sample of CIS countries. Further, we examine the spill over effect on macro-economic indicators of our sample of countries. Our preliminary results do not show significant GPR transmissions in terms of returns and risk within the banking sectors of the CIS countries examined