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Short-Term Wholesale Funding and Systemic Risk

Short-Term Wholesale Funding and Systemic Risk PDF Author: International Monetary Fund
Publisher: International Monetary Fund
ISBN: 1463943679
Category : Business & Economics
Languages : en
Pages : 36

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Book Description
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.