Prudential Policies and Systemic Risk: The Role of Interconnections

47 Pages Posted: 10 Jan 2020

See all articles by Madina Karamysheva

Madina Karamysheva

National Research University Higher School of Economics

Ekaterina Seregina

ING Bank - Netherlands Office

Date Written: December 31, 2019

Abstract

The impact of prudential policies in open economies depends not only on their intrinsic efficacy but also on the feedback of the policy through close financial partners. Using a dataset of advanced countries, we find that prudential policy measures reduce systemic risk in the financial system in the 2000-2014 time period. We show that indirect effect in case of uniform interventions enforces the direct one and accounts for up to 87% of total risk reduction. The policies, though, remain insignificant for GIIPS countries, which stay dependent on actions and responses of their financial counterparties.

Keywords: systemic risk, prudential policy, banking regulation, network impact

JEL Classification: F44, G01, G15, G28

Suggested Citation

Karamysheva, Madina and Seregina, Ekaterina, Prudential Policies and Systemic Risk: The Role of Interconnections (December 31, 2019). Available at SSRN: https://ssrn.com/abstract=3512034 or http://dx.doi.org/10.2139/ssrn.3512034

Madina Karamysheva (Contact Author)

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Ekaterina Seregina

ING Bank - Netherlands Office ( email )

1102 MG Amsterdam
P.O. Box 1800
1000 BV Amsterdam
Netherlands

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