Macroprudential policy and systemic risk in G20 nations

Shivani Narayan and Dilip Kumar

Journal of Financial Stability, 2024, vol. 75, issue C

Abstract: Using a panel of 496 banks from the G20 nations, the study assesses the role of macroprudential policies in reducing systemic risk. The study further assesses the utility of these policies in conjunction with monetary policy instruments and bank and country-specific characteristics and finds the significant impact of macroprudential policies in curbing systemic risk and promoting economic stability. The study finds this relationship to hold regardless of economic conditions like inflationary pressure and financial distress. The result highlights that easing macroprudential policies during financial distress can help banks cope with systemic losses. We split the macroprudential policies into policies targeting the demand and supply of loans and find complementarity among the policies to reduce systemic risk. Our results demonstrate the heterogenous effect of macroprudential policies in limiting systemic risk, with the effect varying with bank size, leverage, liquidity, and concentration of loans. Finally, we find a moderating role of these policies in limiting the impact of uncertainties on systemic risk.

Keywords: Systemic risk; Macroprudential policy; Financial stability; Integrated macroprudential policy index; Uncertainty (search for similar items in EconPapers)
JEL-codes: E43 E58 F63 G18 G21 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:75:y:2024:i:c:s1572308924001256

DOI: 10.1016/j.jfs.2024.101340

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