Prevention and Resolution of Systemic Risks:A Study Based on Financial Stability Policies
Establishing a solid financial risk prevention and resolution mechanism is the cornerstone of maintaining financial stability.Currently,China's financial risks are widespread,which expose the deep-seated contradictions accumulated in the long-term development of the banking system.With continuous external shocks,such as the rising geopolitical risks and the global economic downturn,regulatory authorities face huge challenges in maintaining financial stability.However,there is a lack of literature analyzing the generation mechanism of systemic risks and providing empirical evidence for the effects of related policy instruments.To better understand the effectiveness of financial stability policies,this paper systematically analyzes the generation mechanism of systemic risks.Based on the mechanism,this paper extracts three risk factors,including relative size,non-core liabilities ratio,and institutional interconnection,as the intermediary targets of the policies.Subsequently,this paper conducts a theoretical framework of financial stability policies in combination with the above mechanism and summarizes the policy transmission mechanisms during periods of financial stress.Specifically,according to existing regulatory practices and regulations,this paper selects capital injection,asset purchase,and bank mergers as policy instruments.Our analysis reveals that the capital injection policy takes the relative size and non-core liabilities as intermediary targets,while the asset purchase policy and bank merger policy take all factors as intermediary targets.Finally,this paper quantifies the costs and benefits of each policy.In policy simulations,this paper employs the annual reports data of 36 listed commercial banks as sample data.The sample period spans from 2007 to 2019.The results are as follows.Firstly,capital injection policy and liquidity injection policy have efficient impacts on systemic risks.The effects of bank merger policy are highly dependent on the policy implication.Secondly,in terms of intermediary targets,given the ratio of non-core liability,the policy mainly reduces the systemic risks of banking by controlling the institutional interconnection.It is very important to control risks through institutional interconnection,because improper operation is easy to raise risks.Thirdly,the effects of policies vary in different periods.Both the capital injection policy and the asset purchase policy have better effects during stress periods,while the bank merger policy has a relatively significant effect during non-stress periods.The main contributions of this paper are twofold.Firstly,based on the generation mechanism of systemic risks,this paper analyzes the policy transmission mechanism of different tools,providing a standardized policy framework for policymakers.Secondly,this paper quantitatively evaluates the effectiveness of different policy instruments,providing a scientific methodology for evaluating the effects of different policy instruments and comparing the effectiveness of different policy instruments.
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