Identifying Vulnerabilities in Systemically-Important Financial Institutions in a Macro-Financial Linkages Framework

40 Pages Posted: 23 May 2011

See all articles by Tao Sun

Tao Sun

International Monetary Fund (IMF)

Date Written: May 2011

Abstract

This paper attempts to identify the indicators that can demonstrate the vulnerabilities in systemically important financial institutions. The paper finds that (i) indicators on leverage, liquidity, and business scope can help identify the differences between the intervened and non-intervened financial institutions during the subprime crisis; (ii) the expected default frequencies react positively to shocks to leverage, inflation, global financial stress, and global excess liquidity, and negatively to return on assets and equity prices; and (iii) leverage has been the most robust factor with a long-run causal effect on the expected default frequencies.

Keywords: Banking crisis, Banking sector, Credit risk, Economic models, Financial institutions

Suggested Citation

Sun, Tao, Identifying Vulnerabilities in Systemically-Important Financial Institutions in a Macro-Financial Linkages Framework (May 2011). IMF Working Paper No. 11/111, Available at SSRN: https://ssrn.com/abstract=1848543

Tao Sun (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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