Bank Regulation and Systemic Risk Management

Bank regulation encompasses a suite of prudential tools designed to promote the safety and soundness of individual institutions while safeguarding the broader financial system. Core instruments include capital adequacy requirements, liquidity standards, activity restrictions, deposit insurance and supervisory reviews. In recent years, the emphasis has shifted towards macroprudential regulation, which seeks to address system-wide vulnerabilities through countercyclical capital buffers, stress testing and resolution planning. These measures aim to limit the build-up of risk concentrations and curb procyclical lending, thereby reducing the likelihood and severity of crises. The integration of global standards such as the Basel framework has enhanced cross-border regulatory coherence, yet national authorities retain discretion in tailoring rules to local conditions. Emerging challenges—ranging from digital finance and climate-related exposures to geopolitical fragmentation—underscore the need for adaptive regulation and close coordination among supervisory bodies. Effective systemic risk management therefore relies on a dynamic interplay between microprudential oversight and macroprudential tools, underpinned by transparent governance and robust data infrastructure.

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Bank Regulation and Systemic Risk Management publication trend

The graph below shows the total number of articles in bank regulation and systemic risk management across all publications each year (not limited to Nature Index journals).

Technical terms

Systemic risk: The risk that the failure or distress of one institution or a cluster of institutions will trigger instability or collapse in the wider financial system.

Marginal Expected Shortfall: A risk metric estimating the contribution of an individual bank or asset to potential extreme losses in the overall system.

Climate risk: The financial threat posed to banks by climate-related physical hazards and transition processes affecting asset values and credit quality.

Basel II: An international regulatory accord establishing standards for bank capital adequacy, supervisory review and market discipline to promote financial stability.

References

1. Institutional mechanisms, ownership and bank risk-taking during crises. The British Accounting Review (2025).
2. Climate risk and bank stability: International evidence. Journal of Multinational Financial Management (2023).
3. Bank regulation and systemic risk: cross country evidence. Review of Quantitative Finance and Accounting (2020).