Short-term Wholesale Funding and Systemic Risk: A Global CoVaR Approach
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WPnull/12 Short-term Wholesale Funding and Systemic Risk: A Global CoVaR Approach
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Abstract
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.
Classification JEL:C30; G01; G20
Keywords:Systemic importance; liquidity risk; macroprudential regulation
Number of Pages:48
Creation Date:2012-07-31
Number:null/12
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