Does diversification protect European banks’ market valuations in a pandemic?

We use the Covid-19 pandemic to assess whether diversification in various dimensions can protect European banks from substantial negative valuation shocks. Our results demonstrate that functional acts as an economically significant shock absorber: it mitigates banks’ stock market decline by approximately 10 percentage points. Loan portfolio also contributes dampening shock, but with a much lower impact (4.4 points). Geographical fails act absorber. Banks pre-Covid systematic risk, higher liquidity buffers, cost efficiency and active countries better post-Covid growth prospects weathered storm better.