Identifying Vulnerabilities in Systemically-Important Financial Institutions in a Macro-Financial Linkages Framework

Author/Editor:

Tao Sun

Publication Date:

May 1, 2011

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper attempts to identify the indicators that can demonstrate the vulnerabilities in systemically important financial institutions. The paper finds that (i) indicators on leverage, liquidity, and business scope can help identify the differences between the intervened and non-intervened financial institutions during the subprime crisis; (ii) the expected default frequencies react positively to shocks to leverage, inflation, global financial stress, and global excess liquidity, and negatively to return on assets and equity prices; and (iii) leverage has been the most robust factor with a long-run causal effect on the expected default frequencies.

Series:

Working Paper No. 2011/111

Subject:

Banking Capital adequacy requirements Financial institutions Financial regulation and supervision Financial sector policy and analysis Financial services Financial soundness indicators Investment banking Loans Stocks

English

Publication Date:

May 1, 2011

ISBN/ISSN:

9781455261406/1018-5941

Stock No:

WPIEA2011111

Pages:

39

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