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Systemic Financial Sector and Sovereign Risks

Listed author(s):
  • Xisong Jin

    ()

  • Francisco Nadal De Simone

    ()

Registered author(s):

    This study takes a comprehensive approach to systemic risk stemming from Luxembourg’s Other Systemically Important Institutions (OSIIs), from the Global Systemically Important Banks (G-SIBs) to which they belong, from the investment funds sponsored by the OSIIs, from the housing market, from the non-financial corporate sector and from the sovereign. All sectoral balance sheets are integrated and the resulting systemic contingent claims are linked into a stochastic version of the general government balance sheet to gauge their impact on sovereign risk. Explicitly modelling default dependence and capturing the time-varying non-linearities and feedback effects typical of financial markets, the approach evaluates systemic losses and potential public sector costs from contingent liabilities stemming directly or indirectly from the financial sector. Various vulnerability and risk indicators suggest the sovereign is robust to a variety of shocks. The analysis highlights the key role of a sustainable fiscal position for financial stability.

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    File URL: http://www.bcl.lu/en/publications/Working-papers/109/BCLWP109.pdf
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    Paper provided by Central Bank of Luxembourg in its series BCL working papers with number 109.

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    Length: 51 pages
    Date of creation: Jun 2017
    Handle: RePEc:bcl:bclwop:bclwp109
    Contact details of provider: Web page: http://www.bcl.lu/

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