Vol 19 (2022) - Issue 6

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A Comparative Analysis of Systemic Risk and Economic Growth within the Context of Banking – Part 2

Synopsis
Part 1 of this article explored the effectiveness of pre-crisis regulation in mitigating systemic risk and the economic growth of financial institutions, to the post-crisis period. These comparisons demonstrated that post-crisis regulatory changes were sufficient at mitigating systemic risk in a theoretical sense. It also established that the economic growth of financial institutions is not hindered to a serve degree, thus allowing them to act as instruments for the economy.
This continuation article provides a practical insight into whether or not the theory established in Part 1 can effectively work in practice. In so doing, it shows that post-crisis regulation is sufficient at mitigating systemic risk, with the use of practical case studies. It also demonstrates that although post-crisis regulation does not hinder economic growth to a serve degree, oppressive punishment for non-compliance of such regulation does severely hinder economic growth. The first section utilises a case study of Northern Rock and Metro Bank to compare both pre/post-crisis periods and their effectiveness of mitigating systemic risk. The second section looks at the oppressive punishments associated with non-compliance of post-crisis regulation. This identifies the only drawback of the post-crisis period. Final conclusions are then drawn based on the results of the analysis.