Aging gracefully: steering the banking sector through demographic shifts

BIS Working Papers  |  No 1193  | 
12 June 2024



We examine the implications of demographic shifts, particularly ageing populations, on banking business models and financial stability. As populations age, demand for credit declines, prompting banks to adjust their operations and asset allocations. The gradual nature of demographic transition poses challenges for regulators and supervisors, who must detect and monitor associated risks early to prevent potential "Minsky moments", ie sudden wake-up calls triggered by crises. We emphasize the importance of refining policy frameworks to manage tail risks emerging from banks' adaptive strategies, highlighting the need for proactive financial surveillance to ensure robust financial stability in the face of ageing demographics.


This is the first study to explore the influence of ageing on banking stability across advanced economies, unlike previous research that focused on national contexts. We provide empirical evidence demonstrating that banks need to adjust their business models in response to demographic shifts. By assessing – conceptually and empirically – the potential implications on bank solvency, we highlight the critical need for scenario analysis and strategic evaluations for regulators, banking supervisors and financial institutions. These assessments are vital to understand and prepare for the nuanced interplay between demographic shifts and banking behaviours, thereby contributing significantly to the literature on demographic influences on financial stability.


We show a dual relationship between ageing populations and banking stability. On the one hand, ageing populations improve banking stability risks by reducing credit demand and associated risk-taking. On the other hand, this shift drives banks to seek higher returns through unfamiliar and potentially riskier activities, thereby escalating tail risks. We explore transmission channels through the life-cycle hypothesis, showing how demographic ageing affects the financial positions of households and corporations, subsequently influencing banks. We also highlight how banks must adapt strategically given their reduced role in maturity transformation, such as by increasing investment in government bonds, diversifying into new business sectors and expanding into international markets. These adaptations, while necessary to sustain profitability, may amplify tail risks, necessitating further research and long-term monitoring to support these conclusions.


We analyze how aging populations in might affect the stability of banking systems through changes in the balance sheets and risk preferences of banks over the period 2000-2022. While the anticipated decline in maturity transformation due to aging hints at a possible reduction in risk exposure, an older population may propel banks towards yield-seeking behaviors, offsetting the diminishing prominence of conventional lending operations. Through a comprehensive examination of advanced economies over the past two decades, our findings reveal a general enhancement in bank stability correlating with the aging of populations. However, the adaptive responses of banks to these demographic changes are potentially introducing tail risks. Given the rapid global shift towards aging societies, our analysis highlights the critical need for policymakers to be proactive and vigilant. This is particularly pertinent considering historical precedents where periods of relative stability have often been harbingers of emerging risks.

JEL Classification: G21, J11, G01, G28, G32, B26

Keywords: aging, demographics, bank risk-taking, financial stability