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

36 Pages Posted: 28 Feb 2012

See all articles by German Lopez-Espinosa

German Lopez-Espinosa

affiliation not provided to SSRN

Antonio Moreno

School of Economics and Business, University of Navarra

Antonio Rubia Serrano

University of Alicante, Department of Financial Economics; University of California, Los Angeles (UCLA) - Finance Area

Laura Valderrama

International Monetary Fund - Monetary and Capital Markets Department

Date Written: February 2012

Abstract

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.

Keywords: Systemic Risk, Wholesale Funding, Liquidity Risk, Macroprudential Regulation, Economic Models, Financial Institutions, Financial Risk, International Banks, General Financial Markets

JEL Classification: C30, G20

Suggested Citation

Lopez-Espinosa, German and Moreno, Antonio and Serrano, Antonio Rubia and Valderrama, Laura, Short-Term Wholesale Funding and Systemic Risk: A Global Covar Approach (February 2012). IMF Working Paper No. NO.12/46. Available at SSRN: https://ssrn.com/abstract=2012231

German Lopez-Espinosa

affiliation not provided to SSRN

No Address Available

Antonio Moreno

School of Economics and Business, University of Navarra ( email )

Ed. Amigos
Pamplona, Navarra 31009
Spain

Antonio Rubia Serrano

University of Alicante, Department of Financial Economics ( email )

Ctra. S. Vicente s/n
03690-S. Vicente del Raspeig
Alicante, San Vicente del Raspeig - Alicante 03690
Spain
(34) 965 903 621 (Phone)

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
(310) 825-7246 (Phone)

Laura Valderrama (Contact Author)

International Monetary Fund - Monetary and Capital Markets Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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