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Short-term Wholesale Funding and Systemic Risk: A Global CoVaR Approach

Author

Listed:
  • Germán López-Espinosa

    (School of Economics and Business Administration, University of Navarra)

  • Antonio Moreno

    (School of Economics and Business Administration, University of Navarra)

  • Antonio Rubia

    (Department of Financial Economics, University of Alicante)

  • Laura Valderrama

    (International Monetary Fund (IMF))

Abstract

We use the CoVaR approach to identify the main factors behind systemic risk in a set of large international banks. We find that short-term wholesale funding is a key determinant in triggering systemic risk episodes. In contrast, we find weaker evidence that either size or leverage contributes to systemic risk within the class of large international banks. We also show that asymmetries based on the sign of bank returns play an important role in capturing the sensitivity of system-wide risk to individual bank 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.

Suggested Citation

  • Germán López-Espinosa & Antonio Moreno & Antonio Rubia & Laura Valderrama, 2012. "Short-term Wholesale Funding and Systemic Risk: A Global CoVaR Approach," Faculty Working Papers 02/12, School of Economics and Business Administration, University of Navarra.
  • Handle: RePEc:una:unccee:wp0212
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    More about this item

    Keywords

    Systemic importance; liquidity risk; macroprudential regulation;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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