Systemic risk and financial regulation

Several market-based measures of systemic risk have been proposed following the Global Financial Crisis (GFC), but their suitability for emerging markets has received less attention. Therefore, Chapter 2 applies these measures in the context of the Chinese banking system. We find that systemic risk measures show different patterns, capturing different aspects of systemic risk of Chinese banks. However, the rankings of banks based on some of these measures are significantly correlated. The GFC also led to a wave of financial regulatory reforms to address systemic risk and to promote financial stability, notably by increasing bank capital requirements, but their effects have not been extensively studied. Chapter 3 shows that US bank capitalization evolves differently according to the book-based and market-based capital ratios, but tends to increase in the long run. We also find that the market-based capital ratio is negatively associated with bank stock returns only during tranquil periods (identified using the frequency of bank failures) while the book-based capital ratio is positively associated with bank stock returns only during turbulent periods. Chapter 4 performs a counterfactual analysis to evaluate the effectiveness of the Dodd-Frank Act (DFA) in reducing systemic risk in the US banking system. We find no evidence in support of the DFA reducing systemic risk