Banks’ Joint Exposure to Market and Run Risk

Alexander Copestake, Divya Kirti and Yang Liu

No 2023/200, IMF Working Papers from International Monetary Fund

Abstract: Recent failures of US banks highlight that large liability withdrawals can damage capital positions—i.e., that liquidity risk and solvency risk interact. A simple risk assessment for banks in a wide group of countries finds sizable exposure to this interaction. This varies significantly across banks—primarily reflecting differences in cash buffers, capitalization, securities holdings and exposure to market risk—and is highly concentrated. Vulnerability is generally greater for banks in AEs due to lower cash buffers, securities holdings and capitalization. Within AEs—unlike in EMs—larger banks are most exposed, due to greater wholesale funding and thinner capital buffers. Estimated aggregate losses are substantial in some countries, reflecting a range of recent shocks.

Keywords: Banks; Liquidity Risk; Solvency Risk; solvency risk interact; securities holding; bank assets; low-COF bank; deposit franchise; bank data; Securities; Sovereign bonds; Market risk; Bonds; Global (search for similar items in EconPapers)
Pages: 26
Date: 2023-09-22
New Economics Papers: this item is included in nep-ban, nep-fdg and nep-rmg
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