Federal Reserve economists Friederike Niepmann, Leslie Sheng Shen, and Joshua Walker report that U.S. bank stocks are hit by geopolitical risk. In their June 2026 note, they show that the KBW Bank Index falls about 0.1 percentage point for each standard‑deviation jump in the Caldara‑Iacoviello GPR index, an effect that disappears when the broader S&P 500 is controlled for. Across 38 large banks, the median GPR beta is –0.19, ranging from –0.33 to –0.06. The most exposed banks are those with lower profits, smaller liquidity buffers, larger trading asset shares, and greater foreign exposure. Banks with higher ROA or liquid assets experience smaller declines. The study suggests investors are pricing uneven geopolitical vulnerabilities into U.S. banking valuations.
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