On The Conditional Effects Of Systemic Risk Factors On Financial Fragility

This research contributes to the literature on systemic risk and financial structure by analyzing the effects of bank risk factors on systemic risk conditional on banks' underlying financial system structure to find bank factors that specifically determine risk in each financial system during the recent global financial crisis.The study adds new insight to the systemic risk debate by investigating whether banks' contribution to systemic risk varies systematically with the structure of the financial system.In order to carry out the analysis,panel fixed effects model is employed.Structure activity index is used as the main measure of financial structure while structure size index is used to assess the robustness of the main results.I analyze data of financial institutions in 28 countries from 2007 to 2009 and the results show that the effects of bank risk factors on systemic risk vary systematically with banks' underlying financial system structure.I provide evidence that the more market-based a bank's financial system is,the lower its size contributes to overall systemic risk and the more bank-based a bank's financial system is,the higher its size contributes to overall systemic risk.In addition,the more bank-based a bank's financial system is,the less its capital contributes to overall systemic risk.However,the more market-based a bank's financial system is,the higher its capital contributes to overall systemic risk.The findings of the study are relevant to supervisory authorities and policy makers in making decisions about the banking system in different financial systems.