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Short-term Wholesale Funding and Systemic Risk: A Global CoVaR Approach

Short-term Wholesale Funding and Systemic Risk: A Global CoVaR Approach by International Monetary Fund
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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.
International Monetary Fund; February 2012
36 pages; ISBN 9781463943677
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Title: Short-term Wholesale Funding and Systemic Risk: A Global CoVaR Approach
Author: International Monetary Fund