656 - Micro-prudential regulation and banks' systemic risk

DNB Working Papers
Date 14 October 2019

This paper investigates how countries' micro-prudential regulatory regimes are related to banks' systemic risk. We use a bank-level systemic risk indicator that can be decomposed into a bank's individual risk and its systemic linkage. To proxy the strictness of a country's regulatory regime, we employ World Bank survey data.
Our results suggest that entry regulations increased systemic risk before and after the crisis. Liquidity and entry regulations seem to reduce individual risk in the post-crisis era, with little impact on systemic linkage. Other regulation categories, including capital regulation, do not have a robust relationship with systemic risk or its subcomponents.

JEL Codes: G21; G28
Keywords: systemic risk, regulatory regime, micro-prudential regulation