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Measuring Systemic Risk And Financial Linkages In The Thai Banking System

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  • Rungporn Roengpitya

    (Bank of Thailand)

  • Phurichai Rungcharoenkitkul

    (Bank of Thailand)

Abstract

This paper addresses the measurement issues of systemic risk in the Thai banking sector. The concept of conditional value-at-risk (CoVaR), due to Adrian and Brunnermeier (2008), was used to quantify the level of systemic risk and financial linkages among six major Thai commercial banks over the period of 1996Q2-2009Q1. Intuitively, CoVaR measures the degree of ‘risk externalities’ that a single institution imposes on the system. We found that there was additional risk imposed onto the overall system by individual banks, both during the Asian crisis time and in subsequent periods. There is some evidence that larger banks contribute more to this systemic risk, as measured by the concept of “?CoVaR,” but size is far from being a dominant factor. We further apply the concept of CoVaR to measure the financial linkage between any two banks and investigate the changing nature of the linkages over time as well as other bank characteristics that drive such inter-bank relationships. These measures of risk externalities serve as a useful additional toolbox to the regulators, and themselves have novel regulatory implications.

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File URL: http://www.bot.or.th/Thai/EconomicConditions/Publication/DiscussionPaper/dp022010_eng.pdf
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Bibliographic Info

Paper provided by Economic Research Department, Bank of Thailand in its series Working Papers with number 2010-02.

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Length: 44 pages
Date of creation: 26 Feb 2010
Date of revision:
Handle: RePEc:bth:wpaper:2010-02

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References

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  1. Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937, December.
  2. Jean-Charles Rochet & Jean Tirole, 1996. "Interbank lending and systemic risk," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 733-765.
  3. Alan D. Morrison, 2005. "Credit Derivatives, Disintermediation, and Investment Decisions," The Journal of Business, University of Chicago Press, vol. 78(2), pages 621-648, March.
  4. Markus Staub, 1998. "Inter-Banken-Kredite und systemisches Risiko," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 134(II), pages 193-230, June.
  5. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
  6. Jan Kregel, 2008. "Using Minsky's Cushions of Safety to Analyze the Crisis in the U. S. Subprime Mortgage Market," International Journal of Political Economy, M.E. Sharpe, Inc., vol. 37(1), pages 3-23, April.
  7. Ben Cohen & Eli Remolona, 2008. "The Unfolding Turmoil of 2007–2008: Lessons and Responses," RBA Annual Conference Volume, in: Paul Bloxham & Christopher Kent (ed.), Lessons from the Financial Turmoil of 2007 and 2008 Reserve Bank of Australia.
  8. Martin Hellwig, 1995. "Systemic Aspects of Risk Management in Banking and Finance," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 131(IV), pages 723-737, December.
  9. Alan Morrison, 2000. "Credit Derivatives, Disintermediation and Investment Decisions," OFRC Working Papers Series 2001fe01, Oxford Financial Research Centre.
  10. Gianni De Nicolo & Myron L. Kwast, 2001. "Systemic risk and financial consolidation: are they related?," Finance and Economics Discussion Series 2001-33, Board of Governors of the Federal Reserve System (U.S.).
  11. Robert A. Eisenbeis, 1997. "International settlements: a new source of systemic risk?," Economic Review, Federal Reserve Bank of Atlanta, issue Q 2, pages 44-50.
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Cited by:
  1. López-Espinosa, Germán & Moreno, Antonio & Rubia, Antonio & Valderrama, Laura, 2012. "Short-term wholesale funding and systemic risk: A global CoVaR approach," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3150-3162.
  2. Yunyong Thaicharoen & Rungporn Roengpitya & Jiranit Chaowalit & Songklod Rastapana, 2009. "Developing the Efficient and Resilient Financial System for Thailand: Lessons from the Crisis and Challenges Ahead," Working Papers 2009-04, Economic Research Department, Bank of Thailand.
  3. International Monetary Fund, 2012. "Short-Term Wholesale Funding and Systemic Risk," IMF Working Papers 12/46, International Monetary Fund.
  4. Natasha Agarwal et al, 2013. "A Systematic approach to identify systemically important firms," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2013-021, Indira Gandhi Institute of Development Research, Mumbai, India.
  5. Liu, Xiaochun, 2013. "Systemic Risk of Commercial Banks: A Markov-Switching Quantile Autoregression Approach," MPRA Paper 55801, University Library of Munich, Germany.

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