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Short-Term Wholesale Funding and Systemic Risk: A Global Covar Approach
Author: International Monetary Fund
Series:
IMF Working Papers
Volume/Issue:
Volume 2012: Issue 046
Language:
English
Publication Date:
01 Feb 2012
DOI:
https://doi.org/10.5089/9781463936471.001
ISBN:
9781463936471
ISSN:
1018-5941
Pages:
36
Keywords:
WP; balance sheet; financial system; Systemic Risk; Wholesale Funding; Liquidity Risk; Macroprudential Regulation; ranking bank; balance-sheet data; bank characteristic; yield spread; bank overdraft; BAA corporate bond yield; composite index; bank recapitalization date; bank Dummiesj; Financial statements; Vector autoregression; Commercial banks; Global; Africa; Europe
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund