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Short-Term Wholesale Funding and Systemic Risk; A Global Covar Approach

  • International Monetary Fund

In this paper we identify some of the main factors behind systemic risk in a set of international large-scale complex banks using the novel CoVaR approach. We find that short-term wholesale funding is a key determinant in triggering systemic risk episodes. In contrast, we find no evidence that a larger size increases systemic risk within the class of large global banks. We also show that the sensitivity of system-wide risk to an individual bank is asymmetric across episodes of positive and negative asset returns. Since short-term wholesale funding emerges as the most relevant systemic factor, our results support the Basel Committee's proposal to introduce a net stable funding ratio, penalizing excessive exposure to liquidity risk.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/46.

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Length: 36
Date of creation: 01 Feb 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/46
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  1. Michael R King, 2009. "Time to buy or just buying time? The market reaction to bank rescue packages," BIS Working Papers 288, Bank for International Settlements.
  2. Dimitrios Bisias & Mark Flood & Andrew W. Lo & Stavros Valavanis, 2012. "A Survey of Systemic Risk Analytics," Annual Review of Financial Economics, Annual Reviews, vol. 4(1), pages 255-296, October.
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  12. Huang, Rocco & Ratnovski, Lev, 2011. "The dark side of bank wholesale funding," Journal of Financial Intermediation, Elsevier, vol. 20(2), pages 248-263, April.
  13. Gianni De Nicolò & Marcella Lucchetta, 2011. "Systemic Risks and the Macroeconomy," NBER Chapters, in: Quantifying Systemic Risk, pages 113-148 National Bureau of Economic Research, Inc.
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  23. Enrico Perotti & Javier Suarez, 2011. "A Pigovian Approach to Liquidity Regulation," Tinbergen Institute Discussion Papers 11-040/2/DSF15, Tinbergen Institute.
  24. Germán López-Espinosa & Antonio Rubia & Laura Valderrama & Antonio Moreno, 2012. "Systemic Risk and Asymmetric Responses in the Financial Industry," IMF Working Papers 12/152, International Monetary Fund.
  25. Worawut Wesaratchakit & Tientip Subhanij & Rungporn Roengpitya & Wanvimol Sawangngoenyuang & Chanaporn Sereevoravitgul, 2010. "Financing Thailand for Balanced and Sustainable Growth," Working Papers 2010-06, Economic Research Department, Bank of Thailand.
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  28. repec:dgr:uvatin:2011040 is not listed on IDEAS
  29. Rungporn Roengpitya & Phurichai Rungcharoenkitkul, 2010. "Measuring Systemic Risk And Financial Linkages In The Thai Banking System," Working Papers 2010-02, Economic Research Department, Bank of Thailand.
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