Banks’ Joint Exposure to Market and Run Risk
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Summary:
Recent failures of US banks highlight that large liability withdrawals can damage capital positions—i.e., that liquidity risk and solvency risk interact. A simple risk assessment for banks in a wide group of countries finds sizable exposure to this interaction. This varies significantly across banks—primarily reflecting differences in cash buffers, capitalization, securities holdings and exposure to market risk—and is highly concentrated. Vulnerability is generally greater for banks in AEs due to lower cash buffers, securities holdings and capitalization. Within AEs—unlike in EMs—larger banks are most exposed, due to greater wholesale funding and thinner capital buffers. Estimated aggregate losses are substantial in some countries, reflecting a range of recent shocks.
Series:
Working Paper No. 2023/200
Subject:
Bonds Financial institutions Financial regulation and supervision Market risk Public debt Securities Sovereign bonds
Frequency:
regular
English
Publication Date:
September 22, 2023
ISBN/ISSN:
9798400253966/1018-5941
Stock No:
WPIEA2023200
Format:
Paper
Pages:
26
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