Essays on Macroprudential regulation in the Russian banking system

The thesis is devoted to the systemic risk and macroprudential regulation analysis in the Russian banking system. The first chapter examines the issue of systemic liquidity risk and develops a straightforward empirical approach in order to estimate systemic funding liquidity risk in a banking system and to identify systemically important banks. Calculations are carried out using simulated distribution of the aggregate liquidity surplus determined using ICA (Independent Component Analysis). The systemic importance of banks is then assessed according to their contribution to the variability of the system’s liquidity surplus. The second and the third chapters, in turn, analyse the possible consequences of the adoption of the Basel II capital requirements standards (planned for 2015) for the stability of the banking system in Russia. Two methodologies are used. In the second chapter, a methodology based on an empirical joint distribution is employed, while copula modelling is used in the third chapter. In both cases the Value-at-Risk (VaR) approach is applied. Importantly, the results (under both methodologies) show the substantial undercapitalization of the Russian banking system. The procyclicality effect, though, becomes evident only when the empirical joint distribution methodology is employed. The last chapter discusses market discipline in the Russian interbank market and examines whether that is efficient in influencing the risk-taking behaviour of banks during the pre-crisis time and the period afterwards. The existence of quantity-based market discipline is estimated using the Heckman sample selection model, while the efficiency of market discipline is analysed employing the panel data model. The findings show that market discipline was present before the crisis with foreign lenders being the most efficient under this aspect. After the crisis and ensuing distress, in turn, the disciplining mechanisms become practically inefficient.