Short-Term Wholesale Funding and Systemic Risk: A Global Covar Approach
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Summary:
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.
Series:
Working Paper No. 2012/046
Subject:
Banking Commercial banks Econometric analysis Financial crises Financial institutions Financial sector policy and analysis Financial statements Public financial management (PFM) Systemic risk Vector autoregression
English
Publication Date:
February 1, 2012
ISBN/ISSN:
9781463936471/1018-5941
Stock No:
WPIEA2012046
Pages:
36
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