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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 riskMacroprudential regulationsFinancial institution

References

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