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

By Germán López-Espinosa, Antonio Moreno, A. Rubia, Laura Valderrama. Social Science Research Network, 2012

287 citations recorded by the source corpus.

We use the CoVaR approach to identify the main factors behind systemic risk in a set of large international banks. We find that short-term wholesale funding is a key determinant in triggering systemic risk episodes. In contrast, we find weaker evidence that either size or leverage contributes to systemic risk within the class of large international banks. We also show that asymmetries based on the sign of bank returns play an important role in capturing the sensitivity of system-wide risk to individual bank 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.

Subfields: Finance

View Paper: https://www.semanticscholar.org/paper/1ba6fc62c15240846a7a3836dfbe62e27e509b11

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1. Emmanouil N. Karimalis
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Citations in the corpus

• Systemic Risk and Bank Size (2018, unknown): “…2012; Zhang et al., 2015; Laeven et al., 2016; Sedunov, 2016), there is growing evidence that size may not be a persistent determinant of systemic risk in past crises (Weib et al., 2014), nor be a prominent contagion factor among large international banks (Lopez-Espinosa et al., 2012, 2013).”
• Measuring systemic risk in the European banking sector: a copula CoVaR approach (2017, methodology): “Recently, Lòpez-Espinosa et al. (2012, 2013) use the CoVaR methodology to analyse the impact of bank-specific factors on an institution’s solvency risk and its contribution to systemic risk in a portfolio of large international banks.”