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

International Monetary Fund
Authors registered in the RePEc Author Service: Germán López-Espinosa () and Antonio Moreno ()

No 12/46, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: Economic models; Financial institutions; Financial risk; International banks; systemic risk, recapitalization, financial system, contagion, financial crisis, financial stability, bond, stock market, pre-crisis, bonds, financial contagion, financial markets, financial distress, financial intermediation, global financial crisis, corporate bond, money market, government bond, bank liquidity, government bonds, financial instruments, banking supervision, financial assets, stock index, bond yield, crisis episodes, international financial system, financial intermediaries, financial sector, corporate bonds, financial fragility, benchmark bond, stock returns, treasury bond, money market mutual funds (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cba and nep-rmg
Date: 2012-02-01
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Journal Article: Short-term wholesale funding and systemic risk: A global CoVaR approach (2012) Downloads
Working Paper: Short-term Wholesale Funding and Systemic Risk: A Global CoVaR Approach (2012) Downloads
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