Chapter 15. Balance Sheet Network Analysis of Too-Connected-to-Fail Risk in Global and Domestic Banking Systems
Author:
Chan-Lau Jorge A.
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Language:
English
Print Publication Date:
23 Dec 2014
Keywords:
BOOK; IMF staff; balance sheet; BNP Paribas; credit growth; shortfall exercise; Stress testing; Loans; Credit risk; Nonperforming loans; Commercial banks; Global; Europe; Eastern Europe; Southern Europe; Africa

Abstract

The 2008–9 financial crisis highlighted the importance of evaluating vulnerabilities owing to interconnectedness, or too-connected-to-fail risk, among financial institutions for country monitoring, financial surveillance, investment analysis, and risk management purposes. This chapter illustrates the use of balance sheet–based network analysis to evaluate interconnectedness risk, under extreme adverse scenarios, in banking systems in mature and emerging market countries, and between individual banks in Chile, an advanced emerging market economy.

Contributor Notes

This chapter was previously published as IMF Working Paper No. 10/107 (Chan-Lau, 2010a). It has benefited from comments from Santiago Acosta, Jorge Canales-Krijlenko, Martin Cerisola, Teresa Daban, Mercedes Garcfa-Escribano, Franka Liedorp, Robert Rennhack, Rafael Romeu, Rodrigo Valdés, Hanne van Voorden, and Mercedes Vera-Martfn and from seminar participants at the IMF.
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Cover A Guide to IMF Stress Testing
A Guide to IMF Stress Testing
Methods and Models
Author:
Ms. Li L Ong
ISBN:
9781484368589
Publication Date:
23 Dec 2014
Publisher:
International Monetary Fund
DOI:
https://doi.org/10.5089/9781484368589.071
Pages:
612
Front Matter
Chapter 1. Stress Testing at the International Monetary Fund: Methods and Models
Part I: The Accounting-Based Approach
Section A. The Balance Sheet–Based Approach
Chapter 2. Introduction to the Balance Sheet–Based Approach to Stress Testing
Chapter 3. Stress Tester: A Toolkit for Bank-by-Bank Analysis with Accounting Data
Chapter 4. Into the Great Unknown: Stress Testing with Weak Data
Chapter 5. Next-Generation Applied Solvency Stress Testing
Chapter 6. Of Runes and Sagas: Perspectives on Liquidity Stress Testing Using an Iceland Example
Chapter 7. Next-Generation Systemwide Liquidity Stress Testing
Chapter 8. Systemic Bank Risk in Brazil: A Comprehensive Simulation of Correlated Market, Credit, Sovereign, and Interbank Risks
Chapter 9. Modeling Correlated Systemic Bank Liquidity Risks
Chapter 10. Review and Implementation of Credit Risk Models
Chapter 11. Bankers without Borders? Implications of Ring-Fencing for European Cross-Border Banks
Chapter 12. Conducting Stress Tests of Defined Benefit Pension Plans
Section B. The Network Analysis Approach
Part II: The Market Price-Based Approach
Section A. The Equity Indicators–Based Approach
Section B. The Extreme Value Theory Approach
Section C. The Contingent Claims Analysis Approach
Part III: The Macro-Financial Approach
Back Matter