Cross-Country Analysis of the Impact of Regulation on Financial Products and Financial Sector Stability, Case of the USA and Russian Federation

This paper studies financial stability in two countries, USA and Russian Federation, from two different perspectives, stability of the interbank market and volumes of structured financial instruments that lead to 2008 crisis. As for the interbank market, its stability was assessed through approach that has not been empirically studied, which is the effect of the share’s volatility of systemically important banks over the interbank lending rate. The level of the interbank lending rate affects the state of the overall economy, and it is affected by policy of the Central Bank, but also, by the demand and supply of the big banks for the short term funds. Therefore, it is meaningful to study whether market’s parameters of those banks (volatility of shares) have effect on the real economy (through interbank lending rate). Volatility of the stocks was measured through basic standard deviation and GARCH approach. As for the second perspective of assessing financial stability, the volume of the structured instruments in the two countries’ financial markets, and its effects on the market’s return asymmetry have been studied. The presumption that was taken is, if the growing volume of such instruments leads to more negative market’s return asymmetry, then those instruments are potentially dangerous, since they increase the probability of big losses.