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

Working Paper No. 12/46

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.
Publication date: February 2012
ISBN: 9781463936471
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Topics covered in this book

This title contains information about the following subjects. Click on a subject if you would like to see other titles with the same subjects.

Economics- Macroeconomics , Economics / General , International - Economics , Systemic Risk , Wholesale Funding , Liquidity Risk , Macroprudential Regulation , Economic Models , Financial Institutions , Financial Risk , International Banks , General Financial Markets

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