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Cross-Border Financial Surveillance

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  • Juan Sole
  • Marco A Espinosa-Vega

Abstract

Effective cross-border financial surveillance requires the monitoring of direct and indirect systemic linkages. 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, we 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. Finally, we discuss how some of the limitations of our 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.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/105.

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Length: 27
Date of creation: 01 Apr 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/105

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Keywords: Bank credit; Banking systems; Credit risk; Economic models; External shocks; Financial risk; Financial sector; Global Financial Crisis 2008-2009; Risk management; banking; contagion; banking system; bank for international settlements; systemic risk; interbank market; banking statistics; prudential regulation; bank of england; banking sector; contingent liabilities; bank of japan; national bank; bank bailouts; systemic instability; financial crisis; financial distress; bank balance sheet; bank exposures; investment banking; bank capital; current market price; financial contagion; bank fragility; central banking; bank negara malaysia;

This paper has been announced in the following NEP Reports:

References

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  1. P. Hartmann & S. Straetmans & C.G. de Vries, 2001. "Asset Market Linkages in Crisis Periods," Tinbergen Institute Discussion Papers 01-071/2, Tinbergen Institute.
  2. Rodrigo Cifuentes & Hyun Song Shin & Gianluigi Ferrucci, 2005. "Liquidity Risk and Contagion," Journal of the European Economic Association, MIT Press, MIT Press, vol. 3(2-3), pages 556-566, 04/05.
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  6. Jeannette Müller, 2006. "Interbank Credit Lines as a Channel of Contagion," Journal of Financial Services Research, Springer, Springer, vol. 29(1), pages 37-60, February.
  7. Lagunoff, Roger & Schreft, Stacey L., 2001. "A Model of Financial Fragility," Journal of Economic Theory, Elsevier, Elsevier, vol. 99(1-2), pages 220-264, July.
  8. Helmut Elsinger & Alfred Lehar & Martin Summer, 2002. "Risk Assessment for Banking Systems," Working Papers, Oesterreichische Nationalbank (Austrian Central Bank) 79, Oesterreichische Nationalbank (Austrian Central Bank).
  9. Christian Upper, 2007. "Using counterfactual simulations to assess the danger of contagion in interbank markets," BIS Working Papers 234, Bank for International Settlements.
  10. Nier, Erlend & Yang, Jing & Yorulmazer, Tanju & Alentorn, Amadeo, 2007. "Network models and financial stability," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 31(6), pages 2033-2060, June.
  11. Maria Vassalou & Yuhang Xing, 2004. "Default Risk in Equity Returns," Journal of Finance, American Finance Association, American Finance Association, vol. 59(2), pages 831-868, 04.
  12. Upper, Christian & Worms, Andreas, 2004. "Estimating bilateral exposures in the German interbank market: Is there a danger of contagion?," European Economic Review, Elsevier, Elsevier, vol. 48(4), pages 827-849, August.
  13. Patrick McGuire & Nikola Tarashev, 2007. "Global monitoring with the BIS international banking statistics," CGFS Papers chapters, Bank for International Settlements, 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.
  14. Philipp Hartmann & Stefan Straetmans & Casper G. de Vries, 2001. "Asset market linkages in crisis periods," Proceedings, Federal Reserve Bank of Chicago 727, Federal Reserve Bank of Chicago.
  15. Furfine, Craig H, 2003. " Interbank Exposures: Quantifying the Risk of Contagion," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 35(1), pages 111-28, February.
  16. Patrick McGuire & Philip Wooldridge, 2005. "The BIS consolidated banking statistics: structure, uses and recent enhancements," BIS Quarterly Review, Bank for International Settlements, Bank for International Settlements, September.
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Citations

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Cited by:
  1. Eugenio Cerutti & Stijn Claessens & Patrick McGuire, 2012. "Systemic risk in global banking: what can available data tell us and what more data are needed?," BIS Working Papers 376, Bank for International Settlements.
  2. Nicolas R. Blancher & Srobona Mitra & Hanan Morsy & Akira Otani & Tiago Severo & Laura Valderrama, 2013. "Systemic Risk Monitoring ("SysMo") Toolkit—A User Guide," IMF Working Papers 13/168, International Monetary Fund.
  3. Sachs, Angelika, 2010. "Completeness, interconnectedness and distribution of interbank exposures: A parameterized analysis of the stability of financial networks," Discussion Paper Series 2: Banking and Financial Studies 2010,08, Deutsche Bundesbank, Research Centre.
  4. Eugenio Cerutti & Patrick M. McGuire & Stijn Claessens, 2011. "Systemic Risks in Global Banking," IMF Working Papers 11/222, International Monetary Fund.
  5. Kalin Tintchev, 2013. "Connected to Whom? International Interbank Borrowing During the Global Crisis," IMF Working Papers 13/14, International Monetary Fund.
  6. Nicolas Arregui & Mohamed Norat & Antonio Pancorbo & Jodi G. Scarlata & Eija Holttinen & Fabiana Melo & Jay Surti & Christopher Wilson & Rodolfo Wehrhahn & Mamoru Yanase, 2013. "Addressing Interconnectedness," IMF Working Papers 13/199, International Monetary Fund.
  7. Christoph Memmel & Angelika Sachs & Ingrid Stein, 2012. "Contagion in the Interbank Market with Stochastic Loss Given Default," International Journal of Central Banking, International Journal of Central Banking, International Journal of Central Banking, vol. 8(3), pages 177-206, September.
  8. Serafín Martínez-Jaramillo & Biliana Alexandrova-Kabadjova & Bernardo Bravo-Benítez & Juan Pablo Solórzano-Margain, 2012. "An Empirical Study of the Mexican Banking System's Network and its Implications for Systemic Risk," Working Papers, Banco de México 2012-07, Banco de México.
  9. Guy, Kester & Lowe, Shane, 2012. "Tracing the Liquidity Effects on Bank Stability in Barbados," MPRA Paper 52205, University Library of Munich, Germany.
  10. Ingo Fender & Patrick McGuire, 2010. "Bank structure, funding risk and the transmission of shocks across countries: concepts and measurement," BIS Quarterly Review, Bank for International Settlements, Bank for International Settlements, September.
  11. Leonidov, A. & Rumyantsev, E., 2013. "Russian Interbank Systemic Risks Assessment from the Network Topology Point of View," Journal of the New Economic Association, New Economic Association, New Economic Association, vol. 19(3), pages 65-80.
  12. Carlos Castro & Juan Sebastian Ordoñez, 2012. "A Network model of systemic risk: identifying the sources of dependence across institutions," DOCUMENTOS DE TRABAJO, UNIVERSIDAD DEL ROSARIO 009651, UNIVERSIDAD DEL ROSARIO.
  13. Memmel, Christoph & Sachs, Angelika & Stein, Ingrid, 2011. "Contagion at the interbank market with stochastic LGD," Discussion Paper Series 2: Banking and Financial Studies 2011,06, Deutsche Bundesbank, Research Centre.
  14. Bluhm, Marcel & Krahnen, Jan Pieter, 2011. "Default risk in an interconnected banking system with endogeneous asset markets," CFS Working Paper Series 2011/19, Center for Financial Studies (CFS).
  15. Javier A. Reyes & Camelia Minoiu, 2011. "A Network Analysis of Global Banking:1978-2009," IMF Working Papers 11/74, International Monetary Fund.

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