How Do Central Banks Identify Risks? A Survey of Indicators

56 Pages Posted: 6 Oct 2021

See all articles by Carmen Broto

Carmen Broto

Banco de España

José Alonso

Banco de España

Esther Cáceres García

Banco de España

Luis Gonzalo Fernandez Lafuerza

Banco de España

Jorge Galán

Banco de España

Matias Lamas

Banco de España

Jose Ramon Martinez Resano

Banco de España

Mariya Melnychuk

Banco de España

Silvia Merino

Banco de España

Patricia Stupariu

Banco de España

María Luisa Tejedor

Banco de España

Irma Alonso Alvarez

Bank of Spain

Mario Alloza

Banco de España

Pablo Burriel

Banco de España

Sandra Garcia

Banco de España

Maria Gil

Banco de España

Luis Molina

Banco de España

Maria Rodriguez-Moreno

Banco de España

Ernesto Villanueva

Banco de España - Research Department

Andrés Alonso

Banco de España

Teresa Caminero

Banco de España

Clara I. Gonzalez

Banco de España

Maria T. Gonzalez-Perez

Bank of Spain

Maria Nalda Tomas

Banco de España

Pedro Javier Martínez-Valero

Banco de España

Date Written: October 1, 2021

Abstract

For central banks, it is crucial to develop and maintain risk identification frameworks that allow them to detect in good time and address potential threats to financial stability with the most appropriate policy tools. This paper reviews the main indicators developed for this purpose by the Banco de España and by other central banks and prudential authorities. In this way, this stocktaking exercise contributes to improving the transparency and effective communication of the financial stability-related tasks carried out at the Banco de España. Some of the indicators are used in regular Banco de España surveillance activities, whereas others pertain to specific research activities. We classify our set of measures into two broad categories depending on the risk monitored: standard or systemic risks. Given the multidimensional nature of systemic risk, its identification goes beyond the sum of the standard risks explored in this paper (namely credit, macroeconomic, market, and liquidity and bank risks). This survey also classifies indicators by the type of institutional segment that triggers risks; namely, sovereigns, households, non-financial corporations, banks, non-bank financial sector, residential real estate and the financial markets. This work shows how the measures developed and regularly used at the Banco de España allow potential vulnerabilities to be comprehensively monitored. Nevertheless, maintaining an adequate risk-identification framework requires continuous adaptation to new theoretical developments and econometric tools, and, more importantly, to emerging challenges. In this respect, there is a current drive to develop new indicators to assess potential risks arising from climate change and those linked to the risk of system-wide cyber incidents. It is expected that the monitoring needs related to these risks will increase in the future.

Keywords: risk identification, systemic risk, systemic risk indicators, standard risk indicators, financial stability

JEL Classification: E58, C43, G10, G21, G32, G50

Suggested Citation

Broto, Carmen and Alonso, José and Cáceres García, Esther and Fernandez Lafuerza, Luis Gonzalo and Galán, Jorge and Lamas, Matias and Martinez Resano, Jose Ramon and Melnychuk, Mariya and Merino, Silvia and Stupariu, Patricia and Tejedor, María Luisa and Alonso Alvarez, Irma and Alloza, Mario and Burriel, Pablo and Garcia, Sandra and Gil, Maria and Molina, Luis and Rodriguez-Moreno, Maria and Villanueva, Ernesto and Alonso, Andrés and Caminero, Teresa and Gonzalez, Clara I. and Gonzalez-Perez, Maria T. and Nalda Tomas, Maria and Martínez-Valero, Pedro Javier, How Do Central Banks Identify Risks? A Survey of Indicators (October 1, 2021). Banco de Espana Occasional Paper No. 2125, Available at SSRN: https://ssrn.com/abstract=3934181 or http://dx.doi.org/10.2139/ssrn.3934181

Carmen Broto (Contact Author)

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

José Alonso

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Esther Cáceres García

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Luis Gonzalo Fernandez Lafuerza

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Jorge Galán

Banco de España ( email )

Alcala 48
Madrid 28014
Spain

Matias Lamas

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Jose Ramon Martinez Resano

Banco de España ( email )

alcala 50
Madrid, 28048
Spain
689238541 (Phone)
28048 (Fax)

HOME PAGE: http://www.bde.es

Mariya Melnychuk

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Silvia Merino

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Patricia Stupariu

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

María Luisa Tejedor

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Irma Alonso Alvarez

Bank of Spain ( email )

Calle Alcala, 48
Madrid, 28014
Spain

Mario Alloza

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Pablo Burriel

Banco de España ( email )

Madrid 28014
Spain

Sandra Garcia

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Maria Gil

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Luis Molina

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Maria Rodriguez-Moreno

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Ernesto Villanueva

Banco de España - Research Department ( email )

Alcala 50
28014 Madrid
Spain

Andrés Alonso

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Teresa Caminero

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Clara I. Gonzalez

Banco de España ( email )

Alcala 48
Madrid 28014
Spain

Maria T. Gonzalez-Perez

Bank of Spain ( email )

Calle Alcala, 48
Madrid, 28014
Spain
+34 913388587 (Phone)

Maria Nalda Tomas

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Pedro Javier Martínez-Valero

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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