Abstract
CoVaR seeks to use joint return data to measure a firm's contribution to systemic risk. To learn what comprehensive regulatory changes can do to systemic risk in general, and CoVaR in particular, this paper uses difference-in-difference to estimate the impact of the extensive and coincident U.S. regulatory changes of 1993 on the systemic risk level of commercial banks, as measured by CoVaR. The law is used as a treatment shock. Investment banks not subject to the law are controls. The unique circumstances used here could also be exploited to inform other risk/regulation questions. Use of a novel CoVaR measure (unconditional rolling CoVaR) allows econometric assessment of exogenous changes and estimation of CoVaR standard errors. With high power, no effect is found. This eliminates from possibility one of two formerly widely held beliefs: 1. That PCA and concurrent regulation lowered systemic risk, or 2. That CoVaR measures systemic risk.
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