Sustainability and Financial Stability: Evidence from European Banks

The main objective of this paper is to study the relationship between the sustainability and the stability of 61 European banks in the period extending from 2005 to 2017. To our knowledge, this is the first study that focuses on the banking sector. We have tested this relationship using a panel vector autoregressive (PVAR) with the generalized method of moments (GMM) method and the Granger causality test. The results show the existence of a bidirectional causality between sustainability and bank stability. More precisely, sustainability and all its different dimensions (environmental, social and governance) have a positive and significant impact on bank stability, while banking stability affect negatively sustainability and its environmental, governance dimensions.