Short-Term Wholesale Funding and Systemic Risk: A Global Covar Approach

February 1, 2012

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Format: Chicago

Short-Term Wholesale Funding and Systemic Risk: A Global Covar Approach, (USA: International Monetary Fund, 2012) accessed December 4, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

In this paper we identify some of the main factors behind systemic risk in a set of international large-scale complex banks using the novel CoVaR approach. We find that short-term wholesale funding is a key determinant in triggering systemic risk episodes. In contrast, we find no evidence that a larger size increases systemic risk within the class of large global banks. We also show that the sensitivity of system-wide risk to an individual bank is asymmetric across episodes of positive and negative asset returns. Since short-term wholesale funding emerges as the most relevant systemic factor, our results support the Basel Committee's proposal to introduce a net stable funding ratio, penalizing excessive exposure to liquidity risk.

Subject: Banking, Commercial banks, Econometric analysis, Financial crises, Financial institutions, Financial sector policy and analysis, Financial statements, Public financial management (PFM), Systemic risk, Vector autoregression

Keywords: Africa, BAA corporate bond yield, Balance sheet, Balance-sheet data, Bank characteristic, Bank Dummiesj, Bank overdraft, Bank recapitalization date, Commercial banks, Composite index, Europe, Financial statements, Financial system, Global, Liquidity Risk, Macroprudential Regulation, Ranking bank, Systemic Risk, Vector autoregression, Wholesale Funding, WP, Yield spread

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2012/046
Stock No:

WPIEA2012046
ISBN:

9781463936471
ISSN:

1018-5941

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