Abstract
The study aims to identify key determinants of systemic risk in Brazil, Russia, India, China and South Africa (BRICS) and Eurozone (EZ) countries, and how these aspects differ in magnitude between the two groups of countries. This paper aims to enhance our comprehension of systemic risk in the BRICS and EZ regions by analysing the pivotal roles of institutions such as banks, financial services and insurance companies in shaping the broader systemic risk landscape. Using annual data covering the period from 2005 to 2021, the research paper seeks to shed light on the extent to which these institutions impact systemic risk dynamics these regions. This paper seeks to identify and contrast the factors influencing systemic risk in the two economic zones. The research aims to uncover potential discrepancies arising from the distinct economic, and financial structures, and the macroeconomic policy frameworks that distinguish the BRICS and EZ regions.
This study employs delta-conditional value at risk (delta-CoVaR) analysis and panel regression to evaluate systemic risk. Delta-CoVaR estimates the conditional value at risk (CoVaR) of financial institutions based on market changes, revealing their systemic importance. It helps researchers understand interconnectedness and potential spillover effects within the financial system, shedding light on systemic risk transmission channels. Key findings suggest that larger institutions, especially in the EZ, heighten systemic risk due to interconnections, triggering chain reactions closely monitored by regulators. Developed economies like the EZ exhibit elevated systemic risk, worsened by the rapid spread of financial turmoil. Accelerated growth rates attract substantial foreign investment, intensifying systemic risk, notably in commodity-dependent BRICS nations.
This study represents a significant contribution to the current pool of knowledge regarding systemic risk. It underscores the vital necessity of customising the evaluation of factors influencing systemic risk to match the unique economic circumstances within which they function. By shedding light on the factors underpinning systemic risk in the BRICS and EZ regions, this study holds the potential to offer valuable insights for government and regulatory bodies. These insights can inform policy decisions and strategies for assessing and managing systemic risk, considering the pivotal roles played by financial institutions and macroeconomic variables in these regions.
Keywords: systemic risk, delta conditional value at risk, BRICS, EZ, financial institution, regulation.