How do banks price loansunder uncertainty?

Purpose This study provides one of the first investigations into the effect of policy uncertainty (PU) on US bank loan pricing. Design/methodology/approach Firstly, the study use multiple fixed effect estimation combined with a large sample of US banks from 2001:Q1 to 2021:Q1 to estimate the impact of PU and US bank loan pricing. In addition, the study also performs different econometrics regression methods to test the robustness of the model including Prais–Winsten approach, Newey–West approach and two-stage least squares regression. Findings The study evidence suggests that loan costs become costlier when PU increases. In addition, this effect is more pronounced with larger banks, potentially due to the nature of loans. Moreover, loans originated by diversified and safer banks are cheaper amid PU. Originality/value To the best of the author’s/authors’ knowledge, this paper provides one of the first and the most updated assessments of the impacts of PU (especially including PU components) on US bank loan pricing. In addition, this study is also pioneering in assessing the impact of PU on US bank loan pricing through different transmission channels including diversification and asset quality.