Abstract
This study analyzes daily bank stock returns and their dynamic connectedness for nine American banks between March 18, 2022, and March 15, 2023. It examines the interrelationships between bank stock returns and three economy-wide variables: market sentiment, monetary conditions represented by the Secured Overnight Financing Rate (SOFR), and economic policy uncertainty (EPU). The analysis employs a framework that combines correlation, cointegration, and connectedness (3C), using a time-varying parameter vector autoregression (TVP-VAR) model to examine evolving forecast-error spillovers. Using a 12-variable TVP-VAR model with generalized forecast error variance decomposition, the full-system total connectedness index is 75.4%. SOFR emerges as the primary average net transmitter (+17.6 pp), reflecting funding-cost repricing amid aggressive policy tightening, whereas EPU (-28.1 pp) and VIX (-17.4 pp) are net receivers. The findings provide descriptive evidence of time-varying stress transmission across regional lenders without establishing causal predictive links to bank insolvency.