THE ROLE OF FINANCIAL REGULATION IN MITIGATING SYSTEMIC RISK: LESSONS FROM GLOBAL FINANCIAL CRISES
DOI:
https://doi.org/10.66795/jafep45Keywords:
systemic risk, financial regulation, macroprudential policy, Basel III, resolution regimes, stress testingAbstract
Systemic risk arises when distress in one part of the financial system propagates through interconnected institutions and markets, threatening economy wide stability. Global crises—most notably the 2008 Global Financial Crisis (GFC) and later stress episodes—revealed how excessive leverage, maturity mismatch, weak supervision, and opaque intermediation can amplify shocks. This article reviews how financial regulation mitigates systemic risk through (i) stronger capital and liquidity standards, (ii) macroprudential oversight, (iii) resolution and crisis-management regimes, (iv) market conduct and transparency requirements, and (v) coordinated cross-border supervision. Drawing lessons from major crises, it argues that effective regulation must be risk-sensitive, countercyclical, and enforceable, while adapting to emerging vulnerabilities such as non-bank financial intermediation and digital finance. The paper concludes with policy implications for building resilient financial systems in emerging markets, emphasizing supervisory capacity, data infrastructure, and institutional coordination.
Downloads
References
Acharya, V. V., Pedersen, L. H., Philippon, T., & Richardson, M. (2017). Measuring systemic risk. Review of Financial Studies, 30(1), 2–47.
Bank for International Settlements (Basel Committee on Banking Supervision). (2010). Basel III: A global regulatory framework for more resilient banks and banking systems. BIS.
Bank for International Settlements (Basel Committee on Banking Supervision). (2011). Basel III framework overview (integrated into the Basel Framework). BIS.
Brunnermeier, M. K. (2009). Deciphering the liquidity and credit crunch 2007–2008. Journal of Economic Perspectives, 23(1), 77–100.
Claessens, S., Herring, R. J., & Schoenmaker, D. (2010). A safer world financial system: Improving the resolution of systemic institutions (IMF Working Paper). IMF.
Financial Stability Board. (2011). Key Attributes of Effective Resolution Regimes for Financial Institutions. FSB.
Financial Stability Board. (2024). Key Attributes of Effective Resolution Regimes for Financial Institutions (Revised). FSB.
International Monetary Fund. (n.d.). Macroprudential policy: An organizing framework. IMF.
International Monetary Fund. (2021). Background paper on systemic risk and macroprudential policy advice in Article IV consultations. IMF.
U.S. Congressional Research Service. (2022). Financial regulation: Systemic risk (CRS Report).
U.S. Department of the Treasury. (n.d.). Financial Stability Oversight Council (FSOC).
International Monetary Fund. (n.d.). Global Financial Stability Report (GFSR) portal.
Ahmad, N. R. (2024). AI-enabled public governance in developing states: Service delivery gains, accountability risks, and a practical risk-based regulatory model. World Journal of Applied Research and Policy. https://doi.org/10.52152/wja5db40
Ahmad, N. R. (2025). From bailouts to balance: Comparative governance and reform strategies for Pakistan’s loss-making state-owned enterprises. Journal of Public Administration and Governance, 3(1), 120-134. https://doi.org/10.59075/t8pba787
Ahmad, N. R. (2025). AI-enabled public governance in developing states: Service delivery gains, accountability risks, and a practical risk-based regulatory model. World Journal of Administration, 5(2), 58-72. https://doi.org/10.52152/wja5db40
Yusoff, T., Abdulsamad, A., Muthaya, K., Seraj, A. H. A., Al-refaei, A. A.-A., & Sohail, N. (2026). SMEs sustainable growth model: The role of entrepreneurial intention, organizational culture, and networking capabilities. In R. K. Hamdan (Ed.), Integrating Big Data and IoT for Enhanced Decision-Making Systems in Business (Studies in Big Data, Vol. 178, pp. 239–250). Springer Nature Switzerland. https://doi.org/10.1007/978-3-031-97613-1_21
Salhab, M. A., Sohail, N., & Ali, D. A. (2025). The impact of AI-driven tools on production efficiency and quality management with Cascadeur software. In 2025 International Conference on Metaverse and Current Trends in Computing (ICMCTC). IEEE. https://doi.org/10.1109/ICMCTC62214.2025.11196350
Maruf, T. I., Kowsar, A. M., Haque, A. K. M. A., Siddique, M. M., Sohail, N., & Mannan, M. (2024). The future of dining: Robotics hand-in restaurant service revolutionizes user experience in Kuala Lumpur. Journal of Education & Social Sciences, 27(1), 83–93. https://doi.org/10.5281/zenodo.13767084
Yusoff, T., Abdulsamad, A., Muthaya, K., Seraj, A. H. A., Al-refaei, A. A., & Sohail, N. (2026). SMEs sustainable growth model: The role of entrepreneurial intention, organizational culture, and networking capabilities. In R. K. Hamdan (Ed.), Integrating big data and IoT for enhanced decision-making systems in business (Studies in Big Data, Vol. 178, pp. 239–250). Springer Nature Switzerland. https://doi.org/10.1007/978-3-031-97613-1_21
Downloads
Published
Issue
Section
License
Copyright (c) 2025 Muhammad Usman Raza , Sana Javed (Author)
This work is licensed under a Creative Commons Attribution 4.0 International License.
All articles in the Journal of Applied Finance and Economic Policy are published under the Creative Commons Attribution 4.0 (CC BY 4.0) license. Users may share, distribute, and adapt the content for any purpose, including commercial use, provided proper credit is given to the authors and the journal.
