A Cross-Regional Analysis of the Institution and Macroeconomics Determinants of Systemic Risk using Delta CoVaR: Evidence from BRICS and Eurozone Economies

This study explores cross-regional interconnectedness, potential spillover effects, and the channels through which systemic risk is transmitted across financial institutions and macroeconomic factors in BRICS and Eurozone economies from 2005 to 2021. The aim is to deepen the understanding of systemic risk at a cross-regional level, highlight the pivotal role of institutions in shaping the broader systemic risk landscape, and uncover potential discrepancies arising from the differing economic structures, financial institutions, and macroeconomic policy frameworks of the BRICS and Eurozone regions. Using panel regression analysis and the Delta-CoVaR approach, this study models monthly data on selected systemic risk determinants for BRICS and Eurozone economies from 2005 to 2021. Our findings reveal that larger institutions in the Eurozone heighten the interconnectedness of systemic risk, triggering chain reactions that attract close regulatory scrutiny. Furthermore, Eurozone nations exhibit heightened systemic risk, exacerbated by the rapid transmission of financial turmoil. In the BRICS economies, accelerated growth rates attract substantial foreign investment, further intensifying systemic risk in their commodity-dependent markets. Policy recommendations from this study suggest that for a stronger risk management strategy, decisionmakers should consider the pivotal roles played by financial institutions and macroeconomic variables in spreading systemic risk within the BRICS and Eurozone regions.