Macro-prudential Regulation,Monetary Policy And Bank Systematic Risk

Since the global financial crisis caused by US subprime mortgage crisis in 2007,the stability of the banking industry has aroused great concern.In a highly linked financial system,problems with individual institutions spread rapidly through the risk contagion and spillover effects to the entire financial system,leading to economic recession.This kind of systematic risk brings great impact and harm,has caused the international academia and the government departments attach great importance.It is not enough to pay attention to the interconnectedness of the financial system,and to analyze the systematic risk of the financial system from the macro level as a whole and to analyze the risk of the financial system.People are increasingly aware of the limitations of micro-prudential management,and macro-prudential management is more and more important.Therefore,from the perspective of macro-prudential regulation to study the safety and stability of financial system has important theoretical and practical significance.In addition,the impact of monetary policy on the financial crisis and the formation can not be ignored.Before the global financial crisis,some countries or regions continue to be in a low interest rate and loose monetary policy environment,leading to financial institutions to estimate the economic situation is blindly optimistic.The banking industry intensifies competition,reduces credit conditions,relax the audit standards of loan customers’ repayment ability,which led to the huge increase in the number of loans and the gradual accumulation of loan risk,coupled with the risk of regulation failed to keep up with,and ultimately lead to bubbles.On-going low real interest rates have fueled asset price bubbles and increased securitized credit products,leading to rising leverage of financial institutions and increasing risk.Thus,the impact of monetary policy on bank risk taking and how to integrate macro-prudential and monetary policy frameworks to maintain financial stability are urgent problems to be solved.After the financial crisis,China has also strengthened the macro-prudent management.Based on the large scale of China’s banking credit in the whole,the central bank has proposed the establishment of counter-cyclical credit adjustment mechanism and financial macro-control system.Measures implemented include window guidance,capital requirements,dynamic provisioning,differential deposit reserve ratio and adjusted mortgage ratio,etc.,to strengthen the prudent management so as to guide the steady growth of monetary and credit.At present,most of the domestic and foreign researche focus on the study of the impact of monetary policy or macro-prudential policy on bank risk,but the research on coordination between the policy mix is relatively small.This paper will focus on the coordination of monetary policy and macro-prudential policy,and investigate how to minimize the conflict effect between the two policies,to explore the impact of the optimal policy mix on the bank systematic risk.In this paper,the measurement of systematic risk is standardized and multidimensional.The CCA method is adopted to measure the risk of a single bank,and the single bank default risk distance DD is calculated.Then,the PDD,LRSQ and DeltaCoVaR are constructed from the system level based on the DD variable.The MES method is employed to extract the risk from the static market model and dynamic DCC-GARCH model.MES is used to measure the marginal risk contribution of banks without systematic risk.SES is used to measure the marginal risk contribution of banks when systematic risk occurs.In the measurement of systematic risk contagion,this paper employs the network model,according to the inter-bank balance sheet data to estimate the bank’s risk exposure matrix,and then through the software simulation to simulate the single or multiple bank failures in banking system.And then,estimate the amount of bank failures and assets lost to measure the contagious risk of the banking system.For the identification of systematically important banks,this paper from multiple dimensions uses multiple indicators to measure and based on these index this paper also construct a comprehensive measurement of systematically important banks,namely CSII,and then base on CSII this paper order the systematically important banks from the comprehensive perspective.On the basis of studying the influencing factors of systematic risk,this paper focuses on the influence of bank competition and monetary policy on bank systematic risk after controlling a series of variables such as banking level,regulation level and macro level.The study of the co-movement among macro-prudential policy,monetary policy and bank systematic risk is the key of the paper.In the study of policy coordination and interaction,the DSGE model with banking department is introduced,and the standard solving process of DSGE model is employed to systematically analyze the co-movement between macro-prudential policy,monetary policy and bank systematic risk.We also do a comprehensive scenario analysis and benefit analysis on how to use the optimal policy mix based on macro-prudential policy and monetary policy by simulating macro-prudential and monetary policy loss function.The results show that if the policy is to be implemented alone,then the monetary policy is the best policy;if the policy is to be used in combination,then the use of combination of policies with same cycle are the best;in the case of large economic disturbances,the best way of central bank is to do nothing or waiting for a slight ease of macroeconomic fluctuations and then to adopt discretionary policies.The research results of this paper have very important application value and practical significance in the aspect of regulatory decision-making.First,the establishment of bank systematic risk facilitates the policy authorities for macro-prudent management from the system level.On the basis of micro-prudential management,policy authorities should pay more attention to the macro-prudential management,notice the time and space dimension of risk contagion and strengthen the coordination of macro-prudential management and monetary policy.Second,in terms of systematic risk influencing factors,monetary policy has a significant impact on bank systematic risk.Therefore,when setting up macro-prudential framework,the central bank must consider the coordination of monetary policy and macro-prudential policy.With the marketization of China’s interest rates,the degree of competition between banks has increased,thus affecting the bank’s risk-taking behavior.Therefore,policymakers need to take this into account when implementing macro-prudential policies.For different banks,differentiated regulatory system should be implemented to effectively reduce systematic risk and improve the stability of the entire financial system.Thirdly,based on the co-movement among macro-prudential policy,monetary policy and bank systematic risk,regulators should devise a series of effective policy mix to focus on strengthening macro-prudential management and monetary policy coordination and cooperation to explore a suitable path of macro-prudential management and monetary policy coordination.