The impact of Federal Reserve Interest Rate Hikes on the Systemic Risk of the U.S. Banking Industry: Based on Semi-Parametric Vine Copula SCCA Model

Abstract

We use the Vine Copula SCCA model to measure the systemic risk of the US banking industry, and compares the impact of two different events, external risk and Fed rate hike on systemic risk. The results demonstrate that the systemic risk of the US banking industry reached its peak when affected by external shocks (2020) but was quickly released by market rescue measures. When the Fed raised interest rates consecutively in 2022, large banks showed good resistance to risk, but the joint default risk of small and medium-sized banks remained at a significant level for a long time, indicating that interest rate hikes may have increased the systemic risk of the US banking industry. US banking industry should maintain good risk management and prudent operation, and the regulatory intensity they receive also needs to be strengthened.