The impact of central bank transparency on systemic risk—Evidence from Central and Eastern Europe

The aim of this paper is to analyze the impact of central bank transparency on systemic risk in emerging banking markets using a sample composed of 34 banks from Central and Eastern Europe for a period spanning from 2005 through 2012. Results indicate a positive and significant relationship between central bank transparency and financial institutions’ contribution to systemic risk. On the other side, increased central bank transparency significantly reduces the idiosyncratic risk of banks. The relationship is influenced by the restrictiveness of regulatory framework. We argue that a more transparent central bank is beneficial for the banking sector from a microprudential perspective. However, it may create incentives for financial institutions to engage in risky activities and through herd behavior may increase individual contribution to the risk of the banking system.     

基于动态因子Copula模型的我国银行系统性风险度量

本文基于2007年至2019年我国14家上市银行的股票收益率,构建偏态t-分布动态因子Copula模型,利用时变荷载因子刻画单家银行与整个系统的相关性,计算联合风险概率作为系统性风险整体水平的度量,基于关联性视角提出了新的单家机构系统脆弱性和系统重要性度量指标——系统脆弱性程度和系统重要性程度。该方法充分考虑了银行个体差异性和系统的内在关联性以及收益率的厚尾性和非对称性,从而能够捕捉到更多的信息且兼具时效性。研究表明:银行机构在风险聚集时期相关程度更大,联合风险概率能够准确识别出系统性风险事件且在我国推行宏观审慎评估体系以后有明显降低;整体而言,大型商业银行系统重要性水平最高,同时风险抗压能力也最强;本文使用的度量方法降低了数据获取成本且更具时效性,有助于为宏观审慎差异化监管工作提供借鉴和参考。     

基于动态因子Copula模型的我国银行系统性风险度量

本文基于2007年至2019年我国14家上市银行的股票收益率,构建偏态t-分布动态因子Copula模型,利用时变荷载因子刻画单家银行与整个系统的相关性,计算联合风险概率作为系统性风险整体水平的度量,基于关联性视角提出了新的单家机构系统脆弱性和系统重要性度量指标——系统脆弱性程度和系统重要性程度。该方法充分考虑了银行个体差异性和系统的内在关联性以及收益率的厚尾性和非对称性,从而能够捕捉到更多的信息且兼具时效性。研究表明:银行机构在风险聚集时期相关程度更大,联合风险概率能够准确识别出系统性风险事件且在我国推行宏观审慎评估体系以后有明显降低;整体而言,大型商业银行系统重要性水平最高,同时风险抗压能力也最强;本文使用的度量方法降低了数据获取成本且更具时效性,有助于为宏观审慎差异化监管工作提供借鉴和参考。     

From me to you: Measuring connectedness between Eurozone financial institutions

This paper aims to analyse the tail risk spillover between banks, insurance companies and the shadow banking system in the Eurozone contest. These intra-sectoral interdependencies between financial market participants have contributed to the spread of instability in the financial system. Therefore mapping these links is important for policy-makers to provide supervisory tools and can be a key input into the design of macroprudential policies. For this purpose, we adopt the Tail-Event driven NETwork (TENET) risk model. The TENET is a useful method to map the tail interconnection between the three sectors and to provide systemic risk measures that take into account the “too big to fail” and “too big to interconnected” concepts. The results suggest that each financial sector has a significant impact on the other. By comparing the contribution of each sector, we show that banks are the largest emitters of risk. However, also shadow banking firms are systemic important, given their high level of connection. The work provides a clear view of risk spillovers and interconnection dynamics during the crisis providing a meaningful ranking of the systemic important financial institutions.     

Measuring and testing for the systemically important financial institutions

This paper analyzes ΔCoVaR proposed by Adrian and Brunnermeier (2011) as a tool for identifying/ranking systemically important institutions. We develop a test of significance of ΔCoVaR that allows determining whether or not a financial institution can be classified as being systemically important on the basis of the estimated systemic risk contribution, as well as a test of dominance aimed at testing whether or not, according to ΔCoVaR, one financial institution is more systemically important than another. We provide an empirical application on a sample of 26 large European banks to show the importance of statistical testing when using ΔCoVaR, and more generally also other market-based systemic risk measures, in this context.     

The systemic risk of European banks during the financial and sovereign debt crises

European banks became a source of risk to global financial markets during the financial crisis and attention to the European banking sector increased during the sovereign debt crisis. To measure the systemic risk of European banks, we calculate a distress insurance premium (DIP), which integrates the characteristics of bank size, probability of default, and correlation. Based on this measure, the systemic risk of European banks reached its height in late 2011 around €500 billion. We find that this was largely due to sovereign default risk. The DIP methodology is also used to measure the systemic contribution of individual banks. This approach identifies the large systemically important European banks, but Italian and Spanish banks as a group notably increased in systemic importance during the sample period. Bank-specific fundamentals like capital-asset ratios predict the one-year-ahead systemic risk contributions.     

Risk spillovers and interconnectedness between systemically important institutions

In this paper, we gauge the degree of interconnectedness and quantify the linkages between global and other systemically important institutions, and the global financial system. We document that the two groups and the financial system become more interconnected during the global financial crisis when linkages across groups grow. In contrast, during tranquil times linkages within groups prevail. Global systemically important banks (G-SIBs) contribute most to system-wide distress but are also most exposed. There are more links coming from G-SIBs to other systemically important institutions (O-SIIs) than the other way around, confirming the role of G-SIBs as major risk transmitters in the financial system. The two groups and the global financial system tend to co-vary for periods up to 60 days Prior to their official designation as G-SIBs or O-SIIs, the prevalent news sentiment about these institutions (we measure with a textual analysis) was negative. Importantly, the systemic importance and exposure of G-SIBs and O-SIIs is perceived differently by the Financial Stability Board (FSB) and the European Banking Authority (EBA).     

Derivatives holdings and systemic risk in the U.S. banking sector

This paper studies the impact of the banks’ portfolio holdings of financial derivatives on the banks’ individual contribution to systemic risk over and above the effect of variables related to size, interconnectedness, substitutability, and other balance sheet information. Using a sample of 95 U.S. bank holding companies from 2002 to 2011, we compare five measures of the banks’ contribution to systemic risk and find that the new measure proposed in this study, Net Shapley Value, outperforms the others. Using this measure we find that banks’ aggregate holdings of five classes of derivatives do not exhibit a significant effect on the bank’s contribution to systemic risk. On the contrary, the banks’ holdings of certain specific types of derivatives such as foreign exchange and credit derivatives increase the banks contributions to systemic risk whereas holdings of interest rate derivatives decrease it. Nevertheless, the proportion of non-performing loans over total loans and the leverage ratio have much stronger impact on systemic risk than derivatives holdings. Therefore, the derivatives’ impact plays a second fiddle in comparison with traditional banking activities related to the former two items.     

Assessing the contribution of banks,insurance and other financial services to systemic risk

The aim of this paper is to contribute to the debate on systemic risk by assessing the extent to which distress within the main different financial sectors, namely, the banking, insurance and other financial services industries contribute to systemic risk. To this end, we rely on the $\mathrm{\Delta }\mathit{CoVaR}$ systemic risk measure introduced by Adrian and Brunnermeier (2011). In order to provide a formal ranking of the financial sectors with respect to their contribution to systemic risk, the original $\mathrm{\Delta }\mathit{CoVaR}$ approach is extended here to include the Kolmogorov–Smirnov test developed by Abadie (2002), based on bootstrapping. Our empirical results reveal that in the Eurozone, for the period ranging from 2004 to 2012, the other financial services sector contributes relatively the most to systemic risk at times of distress affecting this sector. In turn, the banking sector appears to contribute more to systemic risk than the insurance sector. By contrast, the insurance industry is the systemically riskiest financial sector in the United States for the same period, while the banking sector contributes the least to systemic risk in this area. Beyond this ranking, the three financial sectors of interest are found to contribute significantly to systemic risk, both in the Eurozone and in the United States.     

中国金融部门间系统性风险溢出的监测预警研究——基于下行和上行ΔCoES指标的实现与优化

为了对我国金融部门间的系统性风险溢出进行实时监测和有效预警,本文基于Adrian and Brunnermeier (2016) 的CoES指标构想,在左尾视角的基础上进一步引入右尾视角,构建下行和上行ΔCoES分别作为系统性风险的同期度量指标和前瞻预警指标,并提出了更为有效合理且同时适用于下行和上行ΔCoES的计算方法。本文一方面采用下行和上行ΔCoES对我国银行、证券、保险三个金融部门间的系统性风险溢出进行监测预警研究,另一方面还基于我国的经验数据检验上行和下行ΔCoES的性质。研究结果显示,我国金融部门间具有显著的系统性风险溢出效应,且三个部门间的风险溢出存在非对称性,银行部门是系统性风险的主要发送者,证券部门是系统性风险的主要接收者;三个部门两两间的风险溢出水平表现出明显的协同性和周期性,且上行的风险溢出水平高于下行。同时,基于我国的经验数据发现,上行ΔCoES对下行ΔCoES具有显著的先导性、前瞻性,上行ΔCoES可以作为系统性风险的前瞻预警指标。此外,下行ΔCoES能够引领ΔCoVaR和基于MES估计方法计算的短期ΔCoES指标,表明本文构建的下行ΔCoES实时性更强,更适合作为系统性风险的实时监测指标。     

Credit information sharing in the nexus between charter value and systemic risk in Asian banking

In this paper, we assess whether the link between charter value and systemic risk in banking is affected by credit information sharing at the country level. Using a sample of Asian listed banks, we document that banks with higher charter value exhibit lower systemic risk because these banks hold more capital. Nevertheless, we find that the self-disciplining role of charter value in banking is more pronounced for countries with lower depth of credit information sharing. Specifically, our findings also reveal that higher charter value alleviates systemic risk and increases capitalization, particularly in countries with lower quality of private credit bureaus. These findings suggest that higher charter value can be detrimental for financial stability due to an increase in bank systemic risk, particularly when private credit bureaus are of better quality. In order to overcome bank systemic risk, this paper advocates the importance of strengthening bank competition to limit charter value, in addition to promoting the development of private credit bureaus.     

Financial networks and systemic risk vulnerabilities: A tale of Indian banks

This study identifies the nature and direction of unprecedented upheavals in the Indian banking sector which is linked to credit market asymmetry. A tail-driven network approach with a mixed sample of banks and firms exhibits the characteristics of the twin-balance-sheet syndrome. We construct the networks with a degree of interconnectedness at different quantiles and identify major systemic risk emitters and receivers. Furthermore, we find a spillover of the riskiness of deep-in-debt firms to banks. Smaller banking institutions evince a greater connection to banks and firms than larger ones. Our results are valuable for policymakers formulating financial stabilization policies and investors considering Indian markets for various opportunities.     

Back to the basics in banking? A micro-analysis of banking system stability

This paper analyzes the relationship between banks’ divergent strategies toward specialization and diversification of financial activities and their ability to withstand a banking sector crash. We first generate market-based measures of banks’ systemic risk exposures using extreme value analysis. Systemic banking risk is measured as the tail beta, which equals the probability of a sharp decline in a bank’s stock price conditional on a crash in a banking index. Subsequently, the impact of (the correlation between) interest income and the components of non-interest income on this risk measure is assessed. The heterogeneity in extreme bank risk is attributed to differences in the scope of non-traditional banking activities: non-interest generating activities increase banks’ tail beta. In addition, smaller banks and better-capitalized banks are better able to withstand extremely adverse conditions. These relationships are stronger during turbulent times compared to normal economic conditions. Overall, diversifying financial activities under one umbrella institution does not improve banking system stability, which may explain why financial conglomerates trade at a discount.     

Identifying systemically important financial institutions in Turkey

This paper examines the systemic risk of financial firms in Turkey. Using Component Expected Shortfall, we provide estimates of systemic risk in Turkey using daily data from 2005 to 2018 and a comprehensive data set encompassing 54 financial firms. Empirical results show that the preponderance of systemic risk in the sample in Turkey is due to large commercial banks. Top ten systemically important financial institutions dominate systemic risk measures in Turkey and account for more than 90 % of total risk over the sample. Consequently, the risk in the Turkish financial system is concentrated in specific financial institutions and makes close monitoring of the top firms essential. Historical incidence of systemic risk in the sample shows elevated levels of systemic risk correspond to well-known external events. Finally, a bivariate VAR model shows that systemic risk is correlated with measures of global financial risks and has significant negative effects on the real economy particularly on industrial production. This is important from a financial stability point of view in that close monitoring of the systemic risk is important in maintaining a healthy financial system and a well- functioning market economy.     

Financial structure change and banking income: A Canada–U.S. comparison

Data suggest that the Canadian financial structure, and particularly indirect finance (e.g., banking), have become more market-oriented. We associate this financial trend in part with the regulatory changes that have occurred in Canada since the 1980s. Financial intermediaries are increasingly involved with financial market activities—e.g. off-balance sheet (OBS) activities such as underwriting securities. In this article we analyze the noninterest income attributable to these financial market activities. We find that the variance of Canadian banks’ aggregate operating-income growth is rising because of the increased contribution of noninterest income. Overall, our analysis corroborates the U.S. findings of Stiroh and Rumble (Stiroh, K., 2006. A portfolio view of banking with interest and noninterest assets. Jounal of Money, Credit, and Banking 38, 1351–1361; Stiroh, K., Rumble, A., 2006. The darkside of diversification: the case of U.S. financial holding companies. Journal of Banking and Finance 30, 2131–2161): by contributing to banking income volatility, market-oriented activities do not necessarily yield straightforward diversification benefits to Canadian banks.     

Heterogeneous market structure and systemic risk: Evidence from dual banking systems

This paper investigates how banking system stability is affected when we combine Islamic and conventional finance under the same roof. We compare systemic resilience of three types of banks in six GCC member countries with dual banking systems: fully-fledged Islamic banks (IB), purely conventional banks (CB) and conventional banks with Islamic windows (CBw). We employ market-based systemic risk measures such as MES, SRISK and CoVaR to identify which sector is more vulnerable to a systemic event. We also compute weighted average GES to determine which sector is most synchronised with the market. Moreover, we use graphical network models to determine the most interconnected banking sector that can more easily spread a systemic shock to the whole system. Using a sample of observations on 79 publicly traded banks operating over the 2005–2014 period, we find that CBw is the least resilient sector to a systemic event, it has the highest synchronicity with the market, and it is the most interconnected banking sector during crisis times.     

The future and dynamics of global systemically important banks

The purpose of this paper is to analyse some of the issues associated with supervision and regulation of global systemically important banks, G-SIB. The paper highlights the importance of managing liquidity risk and creating a global financial system that can minimise regulatory arbitrage by large financial institutions. The paper argues that, unlike some industries such as the airline industry in which risk has been contained and yet the size and capacity of aircrafts have increased, in the banking system, less progress has been made to contain financial risk and allow large banks to expand their global activities. The paper argues that G-SIB are able to continue remaining large provided that a globally integrated financial system ensures effective global supervision of these large banks. The paper compares the US banking crises in the 19th century and the subsequent emergence of the US Federal Reserve System to the possibility of establishing a world central bank and a global supervisory board. Such new global institutions will have the capacity to reduce regulatory arbitrage, increase effective supervision, reduce systemic and liquidity risk and create a more stable global financial system.     

How does competition affect bank systemic risk?

Using bank level measures of competition and co-dependence, we show a robust negative relationship between bank competition and systemic risk. Whereas much of the extant literature has focused on the relationship between competition and the absolute level of risk of individual banks, in this paper we examine the correlation in the risk taking behavior of banks. We find that greater competition encourages banks to take on more diversified risks, making the banking system less fragile to shocks. Examining the impact of the institutional and regulatory environment on bank systemic risk shows that banking systems are more fragile in countries with weak supervision and private monitoring, greater government ownership of banks, and with public policies that restrict competition. We also find that the negative effect of lack of competition can be mitigated by a strong institutional environment that allows for efficient public and private monitoring of financial institutions.     

基于房地产市场的我国系统性金融风险测度与预警研究

本文阐释了基于房地产市场的系统性金融风险形成机制,据此建立了分阶段、跨部门的房地产市场的系统性金融风险网络模型,并运用2006-2017年16家上市银行数据,分析和测度了我国房价大幅下跌所引发的系统性金融风险水平和结构,构建了基于房地产市场的系统性金融风险预警指标并进行测算。研究发现:在房价下跌30%的压力情景下,我国金融体系的潜在总损失总体呈级数式上升,年均增长22.70%;基于房地产市场的系统性金融风险值(SR)呈现先上升后波动下降的总体趋势;系统性金融风险(SR)的脆弱性指标(FLI)整体呈现波浪式振荡变化,且与房地产贷款/权益整体呈反向变动,系统性金融风险(SR)的传染性指标(CTI)在2012-2017年呈持续下降趋势,且与金融市场压力指数、金融机构间资产占总资产比重呈现出高度的一致性变化趋势。最后,基于房地产市场的系统性金融风险预警指标(SRWI)值呈收敛式振荡走势,表明基于房地产市场的系统性金融风险总体可控且呈收敛式下降。     

Systemic Risk in the Chinese Shadow Banking System: A Sector-Level Perspective

We propose to measure the systemic risk in the shadow banking sector. Instead of testing how many institutions will fail due to the initial breakdown of one institution as extant network models do, we associate the systemic risk of one shadow banking sector with the total amount of unexpected losses it might generate both directly and indirectly. Our model focuses on balance sheet contagion and applies a loop algorithm to risk transfer. The result shows that trust companies were the main culprit of financial instability and commercial banks assumed the main risks over 2007–12 in the Chinese shadow banking system.