IIARD International Institute of Academic Research and Development

Journal of Accounting and Financial Management (JAFM )

E-ISSN 2504-8856
P-ISSN 2695-2211
VOL. 11 NO. 3 2025
DOI: 10.56201/jafm.vol.11.no3.2025.pg241.263

---

Systematic Risk and Macroprudential Regulations: A Literature Review

Eneisik Gogo Erasmus

---

Abstract

This study explores the influence of systematic risk on macroprudential regulations. The increasing interconnectedness of financial markets and the potential for systemic risk to propagate through the financial system, understanding how macroprudential policies respond to such risks is crucial for financial stability. The study adopts exploratory research methodology, leveraging secondary resources including electronic journals, archives, published reports, academic journals, books, newspapers, magazines. This approach allows for a comprehensive examination of existing literature and empirical evidence. The findings show that systematic risk, emanating from various sources such as interconnectedness, concentration of exposures, and market volatility, poses significant challenges to financial stability. Macroprudential regulations, including capital adequacy requirements, liquidity ratios, and stress testing, play a critical role in mitigating systemic risk and enhancing the resilience of financial institutions and markets. The effectiveness of these regulations is influenced by factors such as regulatory frameworks, institutional arrangements, and market dynamics. The study conclude that macroprudential regulations are essential for managing systematic risk, there is a need for continuous evaluation and adaptation to evolving market conditions and risk factors. A proactive and dynamic approach to macroprudential policy- making is essential to address emerging systemic risks and maintain financial stability. Additionally, enhancing coordination and cooperation among regulatory authorities at both domestic and international levels is imperative to effectively address cross border systemic risks. The study recommended among others that policymakers and regulatory authorities enhance the granularity and effectiveness of macroprudential regulations to address specific sources of systematic risk. Fostering greater transparency and

keywords:

Systematic risk, Macroprudential regulations, Financial institution

---

References:

Acemoglu, D., Ozdaglar, A., & Tahbaz-Salehi, A. (2015). Systemic risk and stability in
financial networks. American Economic Review, 105(2), 564-608.
Acharya, V. V. (2013). A theory of systemic risk and design of prudential bank regulation.
Journal of Financial Stability, 9(3), 224-255.
Acharya, V. V., Engle, R., & Richardson, M. (2017). Capital shortfall: A new approach to
ranking and regulating systemic risks. American Economic Review, 107(3), 840-868.
Acharya, V. V., Pedersen, L. H., Philippon, T., & Richardson, M. (2010). Measuring systemic
risk. CEPR Discussion Paper No. DP7714. This paper outlines the concept of systemic
risk and introduces methodologies for its measurement, highlighting the importance of
understanding these risks to prevent financial crises.
Adrian, T., & Brunnermeier, M. K. (2016). Conditional value at risk. American Economic
Review, 106(7), 1705-1741.
Adrian, T., & Shin, H. S. (2010). Liquidity and leverage. Journal of Financial Intermediation,
1(4), 1-20.
Adrian, T., & Shin, H. S. (2014). Procyclical leverage and value-at-risk. The Review of
Financial Studies, 4(7), 22-46.
Adrian, T., Boyarchenko, N., & Giannone, D. (2019). Vulnerable growth. American Economic
Review, 109(4), 1263-1289.
Allen, F., & Gale, D. (2000). Financial contagion. Journal of Political Economy, 108(1), 1-33.
Angelini, P., Neri, S., & Panetta, F. (2011). Monetary and macroprudential policies. European
Central Bank Working Paper Series.
Angelini, P., Neri, S., & Panetta, F. (2014). The interaction between capital requirements and
monetary policy. Journal of Money, Credit and Banking, 4(6), 1-16.
Arner, D. W., Barberis, J. N., & Buckley, R. P. (2017). FinTech, RegTech, and the
Reconceptualization of Financial Regulation. Northwestern Journal of International
Law & Business, 37(3), 371-413.
Baker, A. (2013). The new political economy of the macroprudential ideational shift. New
Political Economy.
Bank for International Settlements (2011). BIS 81st annual report. Basel, Switzerland: Bank
for International Settlements.
Bank for International Settlements (2010). Basel III: International framework for liquidity risk
measurement, standards and monitoring. Bank for International Settlements.
Bank of England (2019). The financial policy committee’s approach to setting the
countercyclical capital buffer. Bank of England.
Basel Committee on Banking Supervision (2010). Basel III: A global regulatory framework
for more resilient banks and banking systems. Basel Committee on Banking
Supervision.
Basel Committee on Banking Supervision (2011). Basel III: A global regulatory framework
for more resilient banks and banking systems. Bank for International Settlements.
Beck, T., De Jonghe, O., & Schepens, G. (2018). Bank stress tests: Transparency, disclosure
and market discipline. Journal of Banking & Finance, 96(1), 236-250.
Bernanke, B. S. (2010). On the implications of the financial crisis for economics. Speech at the
Conference on Reflections on the Crisis and the Future of Macroeconomics, Princeton
University.
Bianchi, J., & Mendoza, E. G. (2010). Overborrowing, financial crises, and 'macro-prudential'
taxes. NBER Working Paper No. 16091.
Bisias, D., Flood, M., Lo, A. W., & Valavanis, S. (2012). A survey of systemic risk analytics.
Annual Review of Financial Economics, 4(9), 255-296.
Blundell-Wignall, L., & Roulet, P. (2014). Macroprudential policy, bank systemic risk and
Capital Controls. Organisation for Economic Co-soperation and Development.
Board of Governors of the Federal Reserve System (2019). Comprehensive capital analysis
and review. Federal Reserve.
Bookstaber, R., & Kenett, D. Y. (2016). Looking deeper, seeing more: A multilayer map of the
financial system. Risk management and decision processes center, The Wharton
School, University of Pennsylvania.
Borio, C. (2003). Towards a macroprudential framework for financial supervision and
regulation? CESifo Economic Studies, 49(2), 181-215.
Borio, C. (2011). Implementing a macroprudential framework: Blending boldness and realism.
Bank for International Settlements.
Borio, C. (2011). Rediscovering the macroeconomic roots of financial stability policy: journey,
challenges, and a way forward. Journal of Financial Stability, 3(5), 1-15.
Borio, C. (2011). The financial cycle and macroeconomics: What have we learnt? Journal of
Banking & Finance, 6(3), 44-67.
Borio, C., & Drehmann, M. (2009). Towards a macroprudential framework for financial
supervision and regulation?. CESifo Economic Studies.
Borio, C., & Shim, I. (2007). What can (macro-) prudential policy do to support monetary
policy? BIS Working Papers, No 242.
Borio, C., & Zhu, H. (2012). Capital regulation, risk-taking and monetary policy: A missing
link in the transmission mechanism? Journal of Financial Stability, 8(4), 236-251.
Brownlees, C. T., & Engle, R. F. (2017). A conditional capital shortfall measure of systemic
risk. Review of Financial Studies, 30(1), 48-79.
Brunnermeier, M. K. (2009). Deciphering the liquidity and credit crunch 2007-2008. Journal
of Economic Perspectives, 23(1), 77-100.
Brunnermeier, M. K., & Pedersen, L. H. (2009). Market liquidity and funding liquidity. Review
of Financial Studies, 22(6), 2201-2238.
Brunnermeier, M. K., Crockett, A., Goodhart, C. A. E., Persaud, A. D., & Shin, H. S. (2009).
The fundamental principles of financial regulation. Geneva Reports on the World
Economy 11, International Center for Monetary and Banking Studies.
Brunnermeier, M. K., Gorton, G., & Krishnamurthy, A. (2012). Liquidity mismatch
measurement. NBER Working Paper No. 18455.
Buchanan, M. (2016). Big data in finance and the growth of large firms. Journal of Monetary
Economics, 7(3), 71-87.
Butzbach, O. (2016). Systemic risk, macro-prudential regulation and organizational diversity
in banking. Policy and Society 35(8), 239–251
Carney, M. (2015). Breaking the tragedy of the horizon – climate change and financial
stability. Speech at Lloyd’s of London.
Carney, M. (2018). The future of financial stability. Speech at the National Association for
Business Economics, New York.
Carney, M. (2019). A new horizon. Speech at the FSB Roundtable on the Future of Financial
Regulation, Bank of England.
Carney, M. (2019). Climate change and the financial system. Speech at the European Central
Bank, Frankfurt.
Carstens, A. (2020). Digital currencies and the future of the monetary system. Speech at the
Hoover Institution, Stanford University.
Caruana, J. (2010). Systemic risk: how to deal with it? Bank for International Settlements.
Caruana, J. (2012). Systemic risk, systemic regulation, and the role of central banks after the
crisis. International Journal of Central Banking, 8(4), 203-227.
Cecchetti, S. G., & Schoenholtz, K. L. (2017). How to address the systemic risk of fintech.
VoxEU.
Cihák, M., & Podpiera, J. (2005). Is one watchdog better than three? International experience
with integrated financial sector supervision (IMF Working Paper WP/05/04).
Claessens, S. (2014). An overview of macroprudential policy tools. Annual Review of Financial
Economics.
Claessens, S., & Kodres, L. E. (2014). The regulatory responses to the global financial crisis:
Some uncomfortable questions. IMF Working Paper WP/14/46.
Claessens, S., Ratnovski, L., & Pozsar, Z. (2013). What is shadow banking? IMF Working
Paper, WP/13/25.
Clement, P. (2010). The term macroprudential: origins and evolution. BIS Quarterly Review,
5(9), 59-67.
Committee on the Global Financial System (2012). Operationalising the selection and
application of macroprudential instruments. Bank for International Settlements.
Dagher, J., & Kazimov, K. (2017). International banking and cross-border effects of regulation:
Lessons from the United States. American Economic Review, 107(5), 161-16

DOWNLOAD PDF

---

Back