Identifying Vulnerabilities in Systemically-Important Financial Institutions in a Macro-Financial Linkages Framework

May 1, 2011

Preview Citation

Format: Chicago

Tao Sun. Identifying Vulnerabilities in Systemically-Important Financial Institutions in a Macro-Financial Linkages Framework, (USA: International Monetary Fund, 2011) accessed December 22, 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

This paper attempts to identify the indicators that can demonstrate the vulnerabilities in systemically important financial institutions. The paper finds that (i) indicators on leverage, liquidity, and business scope can help identify the differences between the intervened and non-intervened financial institutions during the subprime crisis; (ii) the expected default frequencies react positively to shocks to leverage, inflation, global financial stress, and global excess liquidity, and negatively to return on assets and equity prices; and (iii) leverage has been the most robust factor with a long-run causal effect on the expected default frequencies.

Subject: Banking, Capital adequacy requirements, Financial institutions, Financial regulation and supervision, Financial sector policy and analysis, Financial services, Financial soundness indicators, Investment banking, Loans, Stocks

Keywords: Bank, Book value per share, Capital adequacy requirements, Expected default frequency, Financial institutions, Financial soundness indicators, Global, IMF staff estimate, Investment banking, Leverage ratio, Loans, Long-term debt, Macro-financial linkages, Moody's KMV EDF datum, Retained earnings, Return on equity, Stocks, Subprime crisis, Systemic, Vulnerabilities, WP

Publication Details

Pages:

39
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/111
Stock No:

WPIEA2011111
ISBN:

9781455261406
ISSN:

1018-5941

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