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Banking on resilience: EU macroprudential policy and systemic risk

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  • Neill, Ashleigh

Abstract

This study examines the effectiveness of macroprudential policies on banking systemic risk for 172 European banks across 20 EU countries from 2000 to 2017. Using a dynamic panel framework, it assesses the effectiveness of policy on two dimensions of systemic risk: banks' contribution to aggregate systemic risk (ΔCoVaR) and their vulnerability in stressed markets (Exposure-ΔCoVaR). Results show policy actions reduce bank systemic risk, especially in terms of Exposure-ΔCoVaR. However, this effect varies between tightening and loosening measures. Interestingly, the analysis indicates that policies don't significantly affect banks' contribution to systemic risk as measured by ΔCoVaR. Borrower-based policies and exposure limits in particular enhance bank resilience. This study has important implications for policymakers regarding the calibration and evaluation of macroprudential measures.

Suggested Citation

  • Neill, Ashleigh, 2024. "Banking on resilience: EU macroprudential policy and systemic risk," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 678-699.
    • Handle: RePEc:eee:reveco:v:93:y:2024:i:pa:p:678-699
    DOI: 10.1016/j.iref.2024.03.058
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    More about this item

    Keywords

    Systemic risk; Macroprudential policy; European banks;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G2 - Financial Economics - - Financial Institutions and Services

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