Vol 19 (2022) - Issue 5

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A Comparative Analysis of Systemic Risk and Economic Growth within the Context of Banking – Part 1

Synopsis
This article seeks to identify and assess the effectiveness of the UKs current framework which governs the regulation of financial institutions in preventing systemic risk. By referring to the 2007-09 financial crisis events, comprehensive comparisons have been presented to decide whether the post-crisis regulatory framework has evolved enough to effectively address previous failures, within the UKs regulatory regime, in preventing systemic risk. The analysis demonstrates that systemic risk is adequately mitigated through the many regulatory requirements presented by Basel III. In this respect, it is submitted that Basel III introduces enough instruments to successfully fill gaps from the pre-crisis period, whilst also contributing towards a key shift in culture, which focuses more on maintaining high regulatory standards. A second and equally important aim of this piece is to evaluate the post-crisis regulatory framework and its effect on financial institutions in relation to their ability to take risks for purposes of economic growth.
There has been large debate in relation to whether in-creased regulations result in an extremely restrictive environment which reduces economic growth to a serve degree. This article contributes to this discussion by demonstrating how economic growth is generally not affected by post-crisis regulation.