{
  "title": "Banks’ Joint Exposure to Market and Run Risk",
  "publication": "IMF Working Papers, September 22, 2023",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2023/09/23/banks-joint-exposure-to-market-and-run-risk-539390",
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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.",
  "sections": [
    {
      "heading": "Overview and authorship",
      "content": "- Title: Banks’ Joint Exposure to Market and Run Risk\n- Authors: Alexander Copestake, Divya Kirti, Yang Liu\n- Publication date: September 22, 2023\n- Series: IMF Working Papers, Working Paper No. 2023/200\n- Pages: 26\n- Volume: 2023\n- Issue: 200\n- DOI: https://doi.org/10.5089/9798400253966.001\n- Stock No: WPIEA2023200\n- ISBN: 9798400253966\n- ISSN: 1018-5941\n- Subjects: Bonds; Financial institutions; Financial regulation and supervision; Market risk; Public debt; Securities; Sovereign bonds\n- Keywords: bank assets; bank data; Banks; Bonds; deposit franchise; Global; Liquidity Risk; low-COF bank; Market risk; Securities; securities holding; Solvency Risk; solvency risk interact; Sovereign bonds"
    },
    {
      "heading": "Key findings",
      "content": "- Recent failures of US banks illustrate that large liability withdrawals can damage capital positions, i.e., liquidity risk and solvency risk interact.\n- A simple risk assessment across a wide group of countries finds sizable exposure to the interaction between market risk and run (liquidity) risk.\n- Cross-bank variation in exposure is significant and primarily reflects differences in:\n  - cash buffers,\n  - capitalization,\n  - securities holdings,\n  - exposure to market risk.\n- Exposure is highly concentrated across banks rather than uniformly distributed.\n- Vulnerability is generally greater for banks in advanced economies (AEs) due to:\n  - lower cash buffers,\n  - lower securities holdings,\n  - lower capitalization.\n- Within AEs—unlike in emerging markets (EMs)—larger banks are most exposed, driven by:\n  - greater wholesale funding,\n  - thinner capital buffers.\n- Estimated aggregate losses are substantial in some countries, reflecting a range of recent shocks."
    },
    {
      "heading": "Analysis and implications",
      "content": "- Interaction channel: Large liability withdrawals can force asset realizations or mark-to-market losses that erode capital, linking liquidity shocks to solvency outcomes.\n- Heterogeneity matters: Bank-level characteristics (cash, capital, securities, market-risk exposure) are the primary determinants of joint vulnerability.\n- Concentration risk: Because exposures are highly concentrated, a limited set of institutions may drive systemic vulnerability in a country.\n- AE vs EM differences: Structural funding and buffer differences imply different vulnerability patterns; policy responses may need to be tailored accordingly.\n- Loss magnitudes: The paper reports substantial estimated aggregate losses in some countries driven by diverse recent shocks (no numeric loss figures are specified on the page overview)."
    },
    {
      "heading": "Policy-relevant takeaways",
      "content": "- Monitoring should integrate liquidity and market-risk channels to capture joint solvency–liquidity vulnerability.\n- Supervisory focus should prioritize banks with low cash buffers, thin capital, large securities holdings sensitive to market risk, and high wholesale funding reliance.\n- Macroprudential assessments should account for concentration of exposure across banks to identify systemically important vulnerabilities.\n- Differences between AEs and EMs warrant country-specific calibration of liquidity and capital requirements, and stress-testing frameworks should reflect the observed interaction between runs and market losses.\n\nIMF Working Paper No. 2023/200, \"Banks’ Joint Exposure to Market and Run Risk,\" Alexander Copestake, Divya Kirti, Yang Liu.\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2023/09/23/banks-joint-exposure-to-market-and-run-risk-539390"
    }
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    "Authors: Alexander Copestake, Divya Kirti, Yang Liu",
    "Published: September 22, 2023",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9798400253966.001",
    "Title: Banks’ Joint Exposure to Market and Run Risk",
    "Authors: Alexander Copestake, Divya Kirti, Yang Liu",
    "Publication date: September 22, 2023",
    "Series: IMF Working Papers, Working Paper No. 2023/200",
    "Pages: 26",
    "Volume: 2023",
    "Issue: 200",
    "DOI: https://doi.org/10.5089/9798400253966.001",
    "Stock No: WPIEA2023200",
    "ISBN: 9798400253966",
    "ISSN: 1018-5941",
    "Subjects: Bonds; Financial institutions; Financial regulation and supervision; Market risk; Public debt; Securities; Sovereign bonds",
    "Keywords: bank assets; bank data; Banks; Bonds; deposit franchise; Global; Liquidity Risk; low-COF bank; Market risk; Securities; securities holding; Solvency Risk; solvency risk interact; Sovereign bonds",
    "Recent failures of US banks illustrate that large liability withdrawals can damage capital positions, i.e., liquidity risk and solvency risk interact.",
    "A simple risk assessment across a wide group of countries finds sizable exposure to the interaction between market risk and run (liquidity) risk.",
    "Cross-bank variation in exposure is significant and primarily reflects differences in:",
    "Exposure is highly concentrated across banks rather than uniformly distributed.",
    "Vulnerability is generally greater for banks in advanced economies (AEs) due to:",
    "Within AEs—unlike in emerging markets (EMs)—larger banks are most exposed, driven by:",
    "Estimated aggregate losses are substantial in some countries, reflecting a range of recent shocks.",
    "Interaction channel: Large liability withdrawals can force asset realizations or mark-to-market losses that erode capital, linking liquidity shocks to solvency outcomes.",
    "Heterogeneity matters: Bank-level characteristics (cash, capital, securities, market-risk exposure) are the primary determinants of joint vulnerability.",
    "Concentration risk: Because exposures are highly concentrated, a limited set of institutions may drive systemic vulnerability in a country.",
    "AE vs EM differences: Structural funding and buffer differences imply different vulnerability patterns; policy responses may need to be tailored accordingly.",
    "Loss magnitudes: The paper reports substantial estimated aggregate losses in some countries driven by diverse recent shocks (no numeric loss figures are specified on the page overview).",
    "Monitoring should integrate liquidity and market-risk channels to capture joint solvency–liquidity vulnerability.",
    "Supervisory focus should prioritize banks with low cash buffers, thin capital, large securities holdings sensitive to market risk, and high wholesale funding reliance.",
    "Macroprudential assessments should account for concentration of exposure across banks to identify systemically important vulnerabilities.",
    "Differences between AEs and EMs warrant country-specific calibration of liquidity and capital requirements, and stress-testing frameworks should reflect the observed interaction between runs and market losses.",
    "**Working Paper**"
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