The impact of COVID-19 related policy interventions on international systemic risk

We examine the relationship between systemic risk, its traditional financial and economic determinants, and the COVID-19 related policy interventions in an international framework. The COVID-19 outbreak period represents for us an ideal hub to test the role of such policies on systemic risk. A cross-country panel analysis shows that bank-specific financial variables do not represent a threat to the financial system, contrary to uncertainty and some economic variables such as inflation and interest rates that are the main channels through which policy interventions increased systemic risk worldwide. A possible explanation for our findings is a milder disconnect between the real economy and the financial system, as opposed to the whole equity market, given the higher burden that the financial sector has in an economic recovery.