Short-Term Wholesale Funding and Systemic Risk : A Global Covar Approach

Author/Editor:

International Monetary Fund

Publication Date:

February 1, 2012

Electronic Access:

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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. 12/46

Subject:

English

Publication Date:

February 1, 2012

ISBN/ISSN:

9781463936471/1018-5941

Stock No:

WPIEA2012046

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

36

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