Assessing Structure-Related Systemic Risk in Advanced Economies

We examine the role that economic size, the degree of trade and financial openness, dependancy on inward foreign direct investment and various aspects of banking system concentration play in determining systemic risk across advanced economies. Across the three systemic risk measures evaluated, we find that small, financially open and FD Idependent economies with more concentrated banking systems are more susceptible to severe tail risk outcomes and higher costs of crises than the average advanced economy. Small and financially open economies appear more likely to experience a systemic banking crisis than their counterparts. In most instances, the joint presence of these structural characteristics combine to further increase systemic risk levels and do not offset each other. Our findings suggest that a more activist macroprudential policy stance may be warranted for countries sharing these characteristics, so that the level of resilience is commensurate to the higher level of risk.