Essays on financial stability and macroprudential regulation
(2022)
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- Abstract
- The Global Financial Crisis (GFC) of 2008–2009 brought to light the importance of taking a macroprudential approach to financial stability in order to ensure that the financial system is resilient to periods of severe stress, which would result in a lower incidence of financial crises. The lessons learned from this exceptional event fostered international efforts to develop a comprehensive macroprudential framework promoting financial stability and the resilience of the financial system. As countries worldwide have been adopting policy instruments from this continuously expanding macroprudential toolkit over the last decade, this dissertation revolves around the assessment of the macroprudential framework. In particular, we focus on i) its effectiveness in delivering on its intended goals; ii) potential unintended consequences of macroprudential policy reforms; and iii) developing new monitoring approaches for macroprudential risks to anticipate and build resilience against the next source of shock to financial stability. Chapter 1 proposes a novel empirical setup that accounts for the simultaneous effects of macroprudential policies on the probability of financial crises and economic growth and also allows for an assessment of their net effect on the probability of a crisis. Our empirical setup is designed to account for the potential direct and indirect effects that macroprudential policies can have on banking crises. We document the empirical relevance of both effects. Chapter 2 provides an analysis of the transmission of macroprudential regulation across both financial and non-financial sectors through the lens of its impact on short- and long-term probabilities of default at the sector level. Tighter macroprudential regulations lower default risk in both financial and non-financial sectors. Higher capital requirements improve the long-run resilience of the financial sector while raising long-term default risk in non-financial sectors. A strengthening in the resolution framework for failing banks has beneficial long-run effects on financial and non-financial sectors. Chapter 3 proposes to broaden the scope of systemic risk monitoring, which is centered around the financial sector, to encompass systemic risk originating in the non-financial sector and potential systemic risk spillovers across sectors. We model time-varying systemic risk of US financial and non-financial firms by fitting a flexible dynamic factor copula model to their CDS spread data.
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Wijnandts, J.-C. (2022). Essays on financial stability and macroprudential regulation. https://hdl.handle.net/2078.5/105310