Financial structure and determinants of systemic risk contribution

Abstract

This paper investigates on what drives the different determinants of systemic risk contribution in different countries, based on a dataset for commercial banks in a bank-based system (the BRICs and Japan) and a market-based system (the US). In both separate and pooled systems, the determinants of systemic risk contribution are found to be conditional on the financial structure whether a country has a bank-based or market-based financial system. The impact of non-traditional banking activities on systemic risk contribution is enlarged when the markets rather than banks are more important to the economy. The systemic risk contribution is generally larger for banks in a market-based system. The findings remain robust to linearity of size, different lags, different exchange rate levels and risk measures. Our study provides insights on understanding the differences in systemic risks determinants in different countries, and justifies country-specific macro-prudential regulations by providing country-level determinants of systemic risks.