Short-term Wholesale Funding and Systemic Risk: A Global CoVaR Approach

Germán López-Espinosa (), Antonio Moreno (), Antonio Rubia () and Laura Valderrama ()
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Germán López-Espinosa: School of Economics and Business Administration, University of Navarra
Antonio Rubia: Department of Financial Economics, University of Alicante
Laura Valderrama: International Monetary Fund (IMF)
Authors registered in the RePEc Author Service: Germán López-Espinosa ()

No 02/12, Faculty Working Papers from School of Economics and Business Administration, University of Navarra

Abstract: We use the CoVaR approach to identify the main factors behind systemic risk in a set of large international banks. We find that short-term wholesale funding is a key determinant in triggering systemic risk episodes. In contrast, we find weaker evidence that either size or leverage contributes to systemic risk within the class of large international banks. We also show that asymmetries based on the sign of bank returns play an important role in capturing the sensitivity of system-wide risk to individual bank 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.

Keywords: Systemic importance; liquidity risk; macroprudential regulation (search for similar items in EconPapers)
JEL-codes: C30 G01 G20 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2012-07-31
New Economics Papers: this item is included in nep-ban and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (146)

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Journal Article: Short-term wholesale funding and systemic risk: A global CoVaR approach (2012)
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