A leaky pipeline: Macroprudential policy shocks, non-bank financial intermediation and systemic risk in Europe

Johanna Krenz and Akhilesh Verma

No 79, WiSo-HH Working Paper Series from University of Hamburg, Faculty of Business, Economics and Social Sciences, WISO Research Laboratory

Abstract: How does macroprudential regulation affect financial stability in the presence of non-bank financial intermediaries? We estimate the contributions of traditional banks vis-'a-vis non-bank financial intermediaries to changes in systemic risk - measured as ∆CoVaR - after macroprudential policy shocks in European countries. We find that while tighter macro-prudential regulation, generally, decreases systemic risk among traditional banks, it has the opposite effect on systemic risk in the non-bank financial intermediation sector. For some types of regulations, the latter effect is even stronger than the former, indicating that macro-prudential tightening increases systemic risk in the entire financial system, through leakages between the traditional and the non-bank financial intermediation sectors.

Keywords: macroprudential policy; systemic risk; ∆; CoVaR; non-bank financial intermediation; regulatory arbitrage; Europe (search for similar items in EconPapers)
JEL-codes: E58 G18 G21 G23 G28 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-eur, nep-fdg and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:uhhwps:281783

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