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

  • 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))

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.

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File URL: http://www.unav.edu/documents/10174/6546776/1343731938_WP_UNAV_02_12.pdf
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Paper provided by School of Economics and Business Administration, University of Navarra in its series Faculty Working Papers with number 02/12.

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Length: 48 pages
Date of creation: 31 Jul 2012
Handle: RePEc:una:unccee:wp0212
Contact details of provider: Web page: http://www.unav.edu/web/facultad-de-ciencias-economicas-y-empresariales

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