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
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 risk; Financial institutions; International banks; Liquidity risk; Systemic risk; Wholesale Funding, Macroprudential Regulation, recapitalization, financial system, contagion, Multiple or Simultaneous Equation Models: General, Financial Institutions and Services: General, General Financial Markets, (search for similar items in EconPapers)
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Journal Article: Short-term wholesale funding and systemic risk: A global CoVaR approach (2012)
Working Paper: Short-term Wholesale Funding and Systemic Risk: A Global CoVaR Approach (2012)
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