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Macroprudential policy and systemic risk in G20 nations

Author

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  • Narayan, Shivani
  • Kumar, Dilip

Abstract

Using a panel of 496 banks from the G20 nations, the study assesses the role of macroprudential policies in reducing systemic risk. The study further assesses the utility of these policies in conjunction with monetary policy instruments and bank and country-specific characteristics and finds the significant impact of macroprudential policies in curbing systemic risk and promoting economic stability. The study finds this relationship to hold regardless of economic conditions like inflationary pressure and financial distress. The result highlights that easing macroprudential policies during financial distress can help banks cope with systemic losses. We split the macroprudential policies into policies targeting the demand and supply of loans and find complementarity among the policies to reduce systemic risk. Our results demonstrate the heterogenous effect of macroprudential policies in limiting systemic risk, with the effect varying with bank size, leverage, liquidity, and concentration of loans. Finally, we find a moderating role of these policies in limiting the impact of uncertainties on systemic risk.

Suggested Citation

  • Narayan, Shivani & Kumar, Dilip, 2024. "Macroprudential policy and systemic risk in G20 nations," Journal of Financial Stability, Elsevier, vol. 75(C).
  • Handle: RePEc:eee:finsta:v:75:y:2024:i:c:s1572308924001256
    DOI: 10.1016/j.jfs.2024.101340
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    Keywords

    Systemic risk; Macroprudential policy; Financial stability; Integrated macroprudential policy index; Uncertainty;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    Statistics

    Access and download statistics

    Corrections

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