Heterogeneous impact of Covid-19 on the US banking sector

•The study aims to demonstrate the impact of Covid-19 on US banks.•Overall, Covid-19 adversely impacts financial performance of US banks.•The impact of the Covid-19 is heterogeneous among the sampled banks.•Covid-19 leads to decline in profitability, cost efficiency and level 3 assets to securities ratio of US banks.•Credit risk and regulatory capital risk of US banks increase due to the Covid-19. This study discusses the impact of Covid-19 on important financial performance indicators and risk indicators of US banks using quarterly panel data of the 87 insured U.S.-chartered commercial banks, covering periods from 2017 to 2021. Based on random effect and two step system GMM models, we provide strong empirical evidence of the adverse impact of the pandemic on important accounting and market-based measures and risk indicators. The presence of Covid-19 implies declining profitability, deteriorating cost efficiency and decreasing level 3 assets to securities ratios. It also adversely impacted key risk indicators by increasing credit risk and the risk of regulatory capital. Using quantile regression, we have also identified heterogeneity among banks in terms of financial performance and risk indicators. The findings of the study will add value in research to the existing literature and provide the newest findings to the stakeholders who are engaged with the US banking sector.