Prudential policies and systemic risk: The role of interconnections

Madina Karamysheva and Ekaterina Seregina

Journal of International Money and Finance, 2022, vol. 127, issue C

Abstract: The impact of prudential policies in open economies depends on their intrinsic efficacy and the spillovers from the close financial partners. Using a sample of advanced economies, we find that prudential policy interventions significantly reduce systemic risk in the financial systems with the impact amplified through a network of financial investment links. Using the Spatial Autoregressive (SAR) model we show that the indirect (network) effect enforces the direct effect and accounts for up to 87% of total risk reduction assuming the uniform policy interventions. We are the first to perform a spillover analysis for prudential policies and uncover the importance of financial network and uniform interventions for the reduction of systemic risk.

Keywords: Systemic risk; Prudential policy; Banking regulation; Networks (search for similar items in EconPapers)
JEL-codes: F44 G01 G15 G28 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:127:y:2022:i:c:s0261560622000997

DOI: 10.1016/j.jimonfin.2022.102696

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