Economic policy uncertainty and bank stability: the role of digitalization level

This paper employs quarterly data from 102 Chinese commercial banks spanning from 2017Q1 to 2021Q3. Utilizing a panel fixed-effects model, we scrutinize the impact of digitization on the relationship between economic policy uncertainty and the stability of commercial banks. The main research conclusion is that a higher level of digitization can alleviate the negative effects of economic policy uncertainty on the stability of commercial banks. Further research indicates that digitization achieves this effect by improving borrower selection, reducing the cost of risk management, and enhancing profitability. The mitigating effect of digitization varies across different types of commercial banks, different time periods, and different external environments, with a stronger impact observed on state-owned banks, banks in the post-pandemic period, and banks operating in high external pressure environments. Our research results demonstrate for the first time how digitization enhances banks’ resilience to the impact of economic policy uncertainty, providing insights for financial stability and development.