Download This PaperThe Impact of Policy Interventions on Systemic Risk across Banks
58 Pages Posted: 21 Mar 2015 Last revised: 9 Jan 2023
Date Written: April 6, 2020
Abstract
What is the impact of policy interventions on the systemic risk of banks? To answer this question, we analyze a comprehensive sample that combines an original set of bank-specific bailout events with the balance sheets of key affected and nonaffected European banks between 2005 and 2014. We find a positive and significant association of guarantees with systemic risk that is somewhat weaker in the long run when the regulator appoints members to the supervisory board. The short run association between recapitalizations and systemic risk is also positive for large and less capitalized banks, while in the long run, recapitalizations are linked with reduced systemic importance, especially for less profitable banks and in cases when the regulator limits management pay. Liquidity injections are positively linked with systemic risk, but the long-run effect is mitigated for small or better capitalized banks. In the short run, injecting liquidity is associated with reduced systemic risk when the regulator imposes restrictions on supervisory board composition or on management pay or capital payouts.
Keywords: systemic risk, policy interventions, risk strategies, regulatory restrictions
JEL Classification: E58, G01, G21, G28, H81
Suggested Citation: Suggested Citation
Swiss Finance Institute
c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland