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Addressing Interconnectedness

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Author Info

  • Nicolas Arregui
  • Mohamed Norat
  • Antonio Pancorbo
  • Jodi G. Scarlata
  • Eija Holttinen
  • Fabiana Melo
  • Jay Surti
  • Christopher Wilson
  • Rodolfo Wehrhahn
  • Mamoru Yanase
Registered author(s):

    Abstract

    This paper reviews tools used to identify and measure interconnectedness and raises the awareness of policymakers as to potential cross-sectional implications of prudential tools aimed at controlling interconnectedness. The paper examines two sets of tools—developed at the IMF and externally—to identify the implications of interconnectedness in systemic risk and how these tools have been applied in IMF surveillance. The paper then proposes a preliminary framework to analyze some key internationally-agreed-upon and national prudential tools and finds that while many prudential tools are effective in reducing interconnectedness, the interaction among these tools is far less clear cut.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/199.

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    Length: 58
    Date of creation: 26 Sep 2013
    Date of revision:
    Handle: RePEc:imf:imfwpa:13/199

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    Related research

    Keywords: Economic integration; Financial systems; Financial risk; Spillovers; Macroprudential Policy; Interconnectedness; network analysis; prudential tools; policymakers; systemic risk; banking; banking system; banking sector; bank reporting; interbank market; capital base; bank for international settlements; investment banking; bank of korea; banking systems; bank exposures; banking network; bank of england; capital adequacy ratio; banking supervision; probability of default; bank bonds; central banking; equity investment; narrow banking; monetary authority; banking crises; banking networks; banks ’ assets; national bank; tier 1 capital; capital requirement; banking activities; multilateral development bank; banking business; banking sectors; bank portfolios; bank of japan; bank stability; bank reports; bankers; bank holding; bank liquidity; banking services; bank holding companies; settlement risk; banks ’ balance sheets; banking stability; clearing house; bank funding;

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    References

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    1. Iman van Lelyveld & Franka Liedorp, 2006. "Interbank Contagion in the Dutch Banking Sector: A Sensitivity Analysis," International Journal of Central Banking, International Journal of Central Banking, vol. 2(2), May.
    2. 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.
    3. Andreas A. Jobst & Dale F. Gray, 2013. "Systemic Contingent Claims Analysis," IMF Working Papers 13/54, International Monetary Fund.
    4. Yulia Makarova & Anna Ilyina & Christian Schmieder & Eugenio Cerutti, 2010. "Bankers without Borders? Implications of Ring-Fencing for European Cross-Border Banks," IMF Working Papers 10/247, International Monetary Fund.
    5. Diebold, Francis X. & Yilmaz, Kamil, 2007. "Measuring financial asset return and volatility spillovers, with application to global equity markets," CFS Working Paper Series 2007/02, Center for Financial Studies (CFS).
    6. International Monetary Fund, 2011. "Financial Linkages Across Korean Banks," IMF Working Papers 11/201, International Monetary Fund.
    7. Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 141-183, Spring.
    8. Larry Eisenberg & Thomas H. Noe, 2001. "Systemic Risk in Financial Systems," Management Science, INFORMS, vol. 47(2), pages 236-249, February.
    9. Ben Craig & Goetz von Peter, 2010. "Interbank tiering and money center banks," BIS Working Papers 322, Bank for International Settlements.
    10. Thierry Tressel, 2010. "Financial Contagion Through Bank Deleveraging," IMF Working Papers 10/236, International Monetary Fund.
    11. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
    12. Battiston, Stefano & Delli Gatti, Domenico & Gallegati, Mauro & Greenwald, Bruce & Stiglitz, Joseph E., 2012. "Liaisons dangereuses: Increasing connectivity, risk sharing, and systemic risk," Journal of Economic Dynamics and Control, Elsevier, vol. 36(8), pages 1121-1141.
    13. Upper, Christian & Worms, Andreas, 2004. "Estimating bilateral exposures in the German interbank market: Is there a danger of contagion?," European Economic Review, Elsevier, vol. 48(4), pages 827-849, August.
    14. Helmut Elsinger & Alfred Lehar & Martin Summer, 2006. "Risk Assessment for Banking Systems," Management Science, INFORMS, vol. 52(9), pages 1301-1314, September.
    15. 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.
    16. Juan Sole & Marco A Espinosa-Vega, 2010. "Cross-Border Financial Surveillance," IMF Working Papers 10/105, International Monetary Fund.
    17. Eugenio Cerutti & Patrick M. McGuire & Stijn Claessens, 2011. "Systemic Risks in Global Banking," IMF Working Papers 11/222, International Monetary Fund.
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