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Systemic risk measures and regulatory challenges

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  • Ellis, Scott
  • Sharma, Satish
  • Brzeszczyński, Janusz

Abstract

This paper discusses different definitions of systemic risk and identifies the challenges, which regulators face in addressing this phenomenon. We conducted a systematic literature review of 4859 abstracts to categorize the various methodologies developed to measure systemic risk. In total, 60 systemic risk measures proposed post-2000 have been critically appraised to inform academics and regulators of their practical applications and model vulnerabilities. This review suggests that most of these methods focus on individual financial institutions rather than on system stability. Those methodologies directly reflect the current regulations, which aim to ensure individual institutions’ soundness. As macro-prudential regulation evolves, policy-makers face the issues of understanding contagion and how regulations should be implemented. This paper also discusses new systemic risk and regulatory challenges resulting from the current COVID-19 pandemic.

Suggested Citation

  • Ellis, Scott & Sharma, Satish & Brzeszczyński, Janusz, 2022. "Systemic risk measures and regulatory challenges," Journal of Financial Stability, Elsevier, vol. 61(C).
    • Handle: RePEc:eee:finsta:v:61:y:2022:i:c:s1572308921001194
    DOI: 10.1016/j.jfs.2021.100960
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    1. Michal Franta, 2025. "The application of multiple-output quantile regression to the US financial cycle," Econometric Reviews, Taylor & Francis Journals, vol. 44(6), pages 696-714, July.
    2. Shiyun Li, 2025. "Leveraging Big Data for SME Credit Risk Assessment: A Novel BP-KMV and GARCH Integration," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 16(1), pages 3321-3349, March.
    3. Arnone, Massimo & Costantiello, Alberto & Leogrande, Angelo, 2025. "Analyzing Risk Exposure Determinants in European Banking: A Regulatory Perspective," MPRA Paper 123190, University Library of Munich, Germany.
    4. Ferilli, Greta Benedetta & Altunbas, Yener & Stefanelli, Valeria & Palmieri, Egidio & Boscia, Vittorio, 2024. "Fintech governance and performance: Implications for banking and financial stability," Research in International Business and Finance, Elsevier, vol. 70(PB).
    5. Li, Rui & Li, Jianping & Zhu, Xiaoqian, 2025. "Downside belief disagreements and financial instability: Evidence from risk factor disclosures in U.S. financial institutions’ 10-K filings," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 99(C).
    6. Mies, Michael, 2024. "Bank opacity, systemic risk and financial stability," Journal of Financial Stability, Elsevier, vol. 70(C).
    7. Andrieş, Alin Marius & Chiper, Alexandra Maria & Ongena, Steven & Sprincean, Nicu, 2024. "External wealth of nations and systemic risk," Journal of Financial Stability, Elsevier, vol. 70(C).
    8. Bouri, Elie & Kamal, Elham & Kinateder, Harald, 2023. "FTX Collapse and systemic risk spillovers from FTX Token to major cryptocurrencies," Finance Research Letters, Elsevier, vol. 56(C).
    9. Armanious, Amir, 2024. "Too-systemic-to-fail: Empirical comparison of systemic risk measures in the Eurozone financial system," Journal of Financial Stability, Elsevier, vol. 73(C).
    10. Didier Wernli & Lucas Böttcher & Flore Vanackere & Yuliya Kaspiarovich & Maria Masood & Nicolas Levrat, 2023. "Understanding and governing global systemic crises in the 21st century: A complexity perspective," Global Policy, London School of Economics and Political Science, vol. 14(2), pages 207-228, May.
    11. He, Dongwei & Wu, Yifan & Wang, Yifan & Xing, Xueyan, 2023. "Prudential regulation and bank performance: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).
    12. Neill, Ashleigh, 2024. "Banking on resilience: EU macroprudential policy and systemic risk," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 678-699.
    13. Lukas Bauer & Ekaterina Kazak, 2025. "Conditional Method Confidence Set," Papers 2505.21278, arXiv.org.
    14. Liu, Jiahao & Shen, Wenyu, 2024. "Financial instability in Europe: Does geopolitical risk from proximate countries and trading partners matter?," Finance Research Letters, Elsevier, vol. 66(C).
    15. Wu, Feng-lin & Zhou, Jia-qi & Wang, Ming-hui, 2024. "The writing on the wall: A connectedness-based analysis of ownership structure and bank risk in China," International Review of Financial Analysis, Elsevier, vol. 95(PB).
    16. repec:osf:osfxxx:2u4jb_v1 is not listed on IDEAS
    17. Ren, Tingting & Li, Shaofang & Zhang, Siying, 2024. "Stock market extreme risk prediction based on machine learning: Evidence from the American market," The North American Journal of Economics and Finance, Elsevier, vol. 74(C).
    18. Narayan, Shivani & Kumar, Dilip, 2024. "Macroprudential policy and systemic risk in G20 nations," Journal of Financial Stability, Elsevier, vol. 75(C).
    19. Dzhagityan, E. & Alekseeva, M., 2024. "The effect of macroprudential policy on risks of U.S. bank holding companies," Journal of the New Economic Association, New Economic Association, vol. 63(2), pages 168-191.

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    More about this item

    Keywords

    Systemic risk; Systematic literature review; Data requirements; Macro-prudential regulation; COVID-19 pandemic;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling

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