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Cross-border financial surveillance: a network perspective

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Author Info

  • Marco A. Espinosa-Vega
  • Juan Solé

Abstract

Purpose – The purpose of this paper is to show how network analysis can be used for effective cross-border financial surveillance, which requires the monitoring of direct and indirect systemic linkages. Design/methodology/approach – This paper illustrates how network analysis could make a significant contribution in this regard by simulating different credit and funding shocks to the banking systems of a number of selected countries. After that, the authors show that the inclusion of risk transfers could modify the risk profile of entire financial systems, and thus an enriched simulation algorithm able to account for risk transfers is proposed. Findings – Finally, the authors discuss how some of the limitations of the simulations are a reflection of existing information and data gaps, and thus view these shortcomings as a call to improve the collection and analysis of data on cross-border financial exposures. Originality/value – This paper is one of the very few to take a cross-border perspective on financial networks. It is also unique in accounting for risk transfers and in proposing a methodology to include the analysis (and monitoring) of risk transfers into a network model.

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Bibliographic Info

Article provided by Emerald Group Publishing in its journal Journal of Financial Economic Policy.

Volume (Year): 3 (2011)
Issue (Month): 3 (August)
Pages: 182-205

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Handle: RePEc:eme:jfeppp:v:3:y:2011:i:3:p:182-205

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Related research

Keywords: Banks; Debt problems; Financial economics; Financial institutions and services; International economics; International finance; International lending; International policy coordination and transmission; Macroeconomic aspects of international trade and f; Micro finance institutions; Mortgages; Other depository institutions;

References

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  1. Upper, Christian & Worms, Andreas, 2002. "Estimating Bilateral Exposures in the German Interbank Market: Is there a Danger of Contagion?," Discussion Paper Series 1: Economic Studies 2002,09, Deutsche Bundesbank, Research Centre.
  2. Roger D. Lagunoff & Stacey L. Schreft, 1998. "A model of financial fragility," Research Working Paper 98-01, Federal Reserve Bank of Kansas City.
  3. X. Freixas & B. Parigi & J-C. Rochet, 2000. "Systemic Risk, Interbank Relations and Liquidity Provision by theCentral Bank," DNB Staff Reports (discontinued) 47, Netherlands Central Bank.
  4. P. Hartmann & S. Straetmans & C. G. de Vries, 2004. "Asset Market Linkages in Crisis Periods," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 313-326, February.
  5. Degryse, H.A. & Nguyen, G., 2006. "Interbank Exposures: An Empirical Examination of Contagion Risk in the Belgian Banking System," Discussion Paper 2006-016, Tilburg University, Tilburg Law and Economic Center.
  6. P. Hartmann & S. Straetmans & C.G. de Vries, 2001. "Asset Market Linkages in Crisis Periods," Tinbergen Institute Discussion Papers 01-071/2, Tinbergen Institute.
  7. Helmut Elsinger & Alfred Lehar & Martin Summer, 2002. "Risk Assessment for Banking Systems," Working Papers 79, Oesterreichische Nationalbank (Austrian Central Bank).
  8. Jeannette Müller, 2006. "Interbank Credit Lines as a Channel of Contagion," Journal of Financial Services Research, Springer, vol. 29(1), pages 37-60, February.
  9. Rodrigo Cifuentes & Hyun Song Shin & Gianluigi Ferrucci, 2005. "Liquidity Risk and Contagion," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 556-566, 04/05.
  10. George Sheldon & Martin Maurer, 1998. "Interbank Lending and Systemic Risk: An Empirical Analysis for Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 134(IV), pages 685-704, December.
  11. Degryse, H.A. & Elahi, M.A. & Penas, M.F., 2009. "Cross-Border Exposures and Financial Contagion," Discussion Paper 2009-008, Tilburg University, Tilburg Law and Economic Center.
  12. Stephen Morris & Hyun Song Shin, 2008. "Financial Regulation in a System Context," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(2 (Fall)), pages 229-274.
  13. Patrick McGuire & Goetz von Peter, 2009. "The US dollar shortage in global banking and the international policy response," BIS Working Papers 291, Bank for International Settlements.
  14. Christian Upper, 2007. "Using counterfactual simulations to assess the danger of contagion in interbank markets," BIS Working Papers 234, Bank for International Settlements.
  15. Patrick McGuire & Nikola Tarashev, 2007. "Global monitoring with the BIS international banking statistics," CGFS Papers chapters, in: Bank for International Settlements (ed.), Research on global financial stability: the use of BIS international financial statistics, volume 29, pages 176-204 Bank for International Settlements.
  16. Maria Vassalou & Yuhang Xing, 2004. "Default Risk in Equity Returns," Journal of Finance, American Finance Association, vol. 59(2), pages 831-868, 04.
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Citations

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Cited by:
  1. Michal Brzoza-Brzezina, 2014. "Financial Frictions and Macroprudential Policy," International Journal of Central Banking, International Journal of Central Banking, vol. 10(2), pages 249-261, June.
  2. Martinez-Jaramillo, Serafin & Alexandrova-Kabadjova, Biliana & Bravo-Benitez, Bernardo & Solórzano-Margain, Juan Pablo, 2014. "An empirical study of the Mexican banking system’s network and its implications for systemic risk," Journal of Economic Dynamics and Control, Elsevier, vol. 40(C), pages 242-265.
  3. Andreas A. Jobst & Dale F. Gray, 2013. "Systemic Contingent Claims Analysis," IMF Working Papers 13/54, International Monetary Fund.
  4. Andreas A. Jobst & Li L. Ong & Christian Schmieder, 2013. "A Framework for Macroprudential Bank Solvency Stress Testing," IMF Working Papers 13/68, International Monetary Fund.
  5. Jobst, Andreas A., 2013. "Multivariate dependence of implied volatilities from equity options as measure of systemic risk," International Review of Financial Analysis, Elsevier, vol. 28(C), pages 112-129.

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