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A PCA Approach to Common Risk Exposures in the Chilean Banking System

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  • Diego Avanzini
  • Alejandro Jara

Abstract

This paper studies three related aspects of the Chilean banking’s systemic risk: (i) to what extent the degree of common risk exposure in the Chilean banking system has changed over the past decades, (ii) during which periods this exposure increased the most, and (iii) when this degree of commonality became a systemic concern. Additionally, it identifies systemically important financial institutions in Chile based on their contribution to the degree of common risk exposure. It finds that prior to the 2008-09 global financial crisis the degree of common risk exposure in Chile increased significantly, and that the banks that contributed the most were not necessarily the biggest ones in size, as measured by their assets share.

Suggested Citation

  • Diego Avanzini & Alejandro Jara, 2013. "A PCA Approach to Common Risk Exposures in the Chilean Banking System," Working Papers Central Bank of Chile 707, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:707
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    References listed on IDEAS

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    5. Li, Baibing & Martin, Elaine B. & Morris, A. Julian, 2002. "On principal component analysis in L1," Computational Statistics & Data Analysis, Elsevier, vol. 40(3), pages 471-474, September.
    6. Anginer, Deniz & Demirguc-Kunt, Asli, 2014. "Has the global banking system become more fragile over time?," Journal of Financial Stability, Elsevier, vol. 13(C), pages 202-213.
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    8. Nikola Tarashev & Claudio Borio & Kostas Tsatsaronis, 2010. "Attributing systemic risk to individual institutions," BIS Working Papers 308, Bank for International Settlements.
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    10. Ricardo J. Caballero, 2010. "The "Other" Imbalance and the Financial Crisis," NBER Working Papers 15636, National Bureau of Economic Research, Inc.
    11. Antonio Ahumada & Jorge Marshall, 2001. "The banking industry in Chile: competition, consolidation and systemic stability," BIS Papers chapters,in: Bank for International Settlements (ed.), The banking industry in the emerging market economies: competition, consolidation and systemic stability, volume 4, pages 45-53 Bank for International Settlements.
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    Cited by:

    1. Gordon, Leo-Rey, 2015. "The Absorption Ratio as an Indicator for Macro-prudential Monitoring in Jamaica," MPRA Paper 69966, University Library of Munich, Germany.
    2. Rodrigo Cifuentes & Alejandro Jara, 2016. "Instituciones de importancia sistémica: identificación y desafíos regulatorios," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 19(1), pages 92-106, April.

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