Subprime mortgage funding and liquidity risk

In this article, we use actuarial methods to solve a nonlinear stochastic optimal liquidity risk management problem for subprime originators with deposit inflow rates and marketable securities allocation as controls. The main objective is to minimize liquidity risk in the form of funding and credit crunch risk in an incomplete market. In order to accomplish this, we construct a stochastic model that incorporates originator mortgage and deposit reference processes. Finally, numerical examples that illustrate the main modeling and optimization features of the article are provided.     

The contribution of (shadow) banks and real estate to systemic risk in China

We empirically evaluate how accounting and financial variables affect the level of systemic risk in traditional and shadow banks, and in real estate finance services in China over the period 2006–2019. We also conduct some stability analysis by evaluating the impact of crisis sub-periods. We find that systemic risk increases in the Size of large financial institutions, particularly shadow entities, while it is insensitive to the Size of real estate finance services. Real estate finance services are instead particularly sensitive to Maturity Mismatch and Leverage. Finally, systemic risk differs across state and non state owned banks.     

Systemic risk in an interconnected banking system with endogenous asset markets

We analyze the emergence of systemic risk in a network model of interconnected bank balance sheets. The model incorporates multiple sources of systemic risk, including size of financial institutions, direct exposure from interbank lendings, and asset fire sales. We suggest a new macroprudential risk management approach building on a system wide value at risk (SVaR). Under the SVaR metric, the contribution of individual banks to systemic risk is well defined and can be approximated by a Shapley value-type measure. We show that, in a SVaR regime, a fair systemic risk charge which is proportional to a bank's individual contribution to systemic risk diverges from the optimal macroprudential capitalization of the banks from a planner's perspective. The results have implications for the design of macroprudential capital surcharges.     

Impact of the subprime crisis on bank ratings: The effect of the hardening of rating policies and worsening of solvency

This paper studies the impact of the subprime crisis on the ratings issued by the rating agencies in evaluating the solvency of banks. After ascertaining a significant worsening of ratings after the crisis, the paper hypothesises the possibility that this worsening is due not exclusively to a deterioration in the banks’ credit quality, but also to a change in the behaviour of the rating agencies. The study designs a methodology to separate the observed change in ratings into two multiplicative components: one associated with the deterioration of the banks’ solvency itself and another associated with the change in the agencies’ valuation criteria. The methodology is applied to the Spanish Banking System during the period 2000–2009. The results obtained show that the observed lowering of ratings (10.88%) is explained (75%) by the deterioration in the solvency of the banks, but also (25%) by the hardening of the valuation criteria adopted by the agencies. This shows the procyclical character of ratings.     

中国系统性金融风险的度量——基于实体经济的视角

本文综合考虑机构个体风险、联动和传染效应、波动和不稳定性以及流动性与信用等风险因素,采用主成分分析分位数回归法(PCQR)构造出可以全面反映实体经济运行情况的系统性金融风险指数,并对系统性风险影响实体经济的传导途径进行了探究。实证结果表明,该指数能较为准确、有效地预测未来宏观经济冲击的分布情形。系统性金融风险主要通过信贷这一渠道传导至实体部门,进而对宏观经济产生负面影响。依据本文构建的指数,当前中国的系统性金融风险处于中高位,防范和化解系统性风险,保持信贷的稳健,是当前中国宏观经济调控的重要任务。     

Econometric measures of connectedness and systemic risk in the finance and insurance sectors

We propose several econometric measures of connectedness based on principal-components analysis and Granger-causality networks, and apply them to the monthly returns of hedge funds, banks, broker/dealers, and insurance companies. We find that all four sectors have become highly interrelated over the past decade, likely increasing the level of systemic risk in the finance and insurance industries through a complex and time-varying network of relationships. These measures can also identify and quantify financial crisis periods, and seem to contain predictive power in out-of-sample tests. Our results show an asymmetry in the degree of connectedness among the four sectors, with banks playing a much more important role in transmitting shocks than other financial institutions.     

Systemic risk in the European sovereign and banking system

We investigate the systemic risk of the European sovereign and banking system during 2008–2013. We utilize a conditional measure of systemic risk that reflects market perceptions and can be intuitively interpreted as an entity’s conditional joint probability of default, given the hypothetical default of other entities. The measure of systemic risk is applicable to high dimensions and not only incorporates individual default risk characteristics but also captures the underlying interdependent relations between sovereigns and banks in a multivariate setting. In empirical applications, our results reveal significant time variation in systemic risk spillover effects for the sovereign and banking system. We find that systemic risk is mainly driven by risk premiums coupled with a steady increase in physical default risk.     

Financial outreach and household financial constraint

This paper analyses how financial outreach affects the probability of households having financial constraint (i.e. being ‘discouraged’ and ‘rejected’ for loan applications). We show that households residing in communities with more bank branches are less likely to be financially constrained. Using the distance to the closest fruit and vegetable (open) market as an instrument for financial outreach, we address the potential endogeneity problem and find our results remain robust. We further provide evidence on the negative relationship between the number of bank branches nearby and the probability of loan rejection, in particular for middle‐income young households.     

Systemic risk and asymmetric responses in the financial industry

To date, an operational measure of systemic risk capturing nonlinear tail-comovements between system-wide and individual bank returns has not yet been developed. This paper proposes an extension of the CoVaR methodology in Adrian and Brunnermeier (2011) to capture the asymmetric response of the banking system to positive and negative shocks to the market-valued balance sheets of individual banks. Building on a comprehensive sample of U.S. banks in the period 1990–2010, the evidence in this paper shows that ignoring asymmetries that feature tail-interdependences may lead to a severe underestimation of systemic risk. On average, the relative impact on the system of a fall in individual market value is sevenfold that of an increase. Moreover, the downward bias in systemic-risk measuring from ignoring this asymmetric pattern increases with bank size. In particular, the conditional tail-comovement between the banking system and a bank that is losing market value belonging to the top size-sorted decile is nearly 5.5 times larger than the unconditional tail-comovement versus 3.3 times for banks in the bottom decile. The asymmetric model also produces much better fitting, with the restriction that gives rise to the standard symmetric model being rejected for most firms in the sample, particularly, in the segment of large-scale banks. This result is important from a regulatory and supervisory perspective, since the asymmetric generalization enhances the capacity to monitor systemic interdependences.     

Spillovers in risk of financial institutions

ABSTRACT

We analyse the total and directional spillovers across a set of financial institution systemic risk state variables: credit risk, real estate market risk, interest rate risk, interbank liquidity risk and overall market risk. We examine the response of the spillover levels, within the set of systemic risk state variables, to a number of events in the financial markets and to initiatives undertaken by the European Central Bank and the Bank of England. The relationship between the time-varying spillovers and policy-related events is analysed using a multiple structural break estimation procedure and looking at the temporary increases in the spillover indices. Our sample includes five European Union countries: core countries France and Germany, periphery countries Spain and Italy, and a reference country, the UK. We show that national stock markets and real estate markets have a leading role in shock transmission across selected state variables. However, the role of the other variables reverses over the course of the crisis. We document that the total and net spillover indices react strongly to the events relating to financial assistance packages in Europe.     

Systemic risk in the Chinese financial system: A panel Granger causality analysis

In this paper, we investigate China’s changing financial interconnectedness via the presence of Granger-causality between firm level factors (Leverage, Market To Book Value and Returns) and systemic risk measures ($\Delta$CoVaR, MES, and SRISK ). The analysis is based on 161 Chinese financial intermediaries (14 Traditional Banks, 16 Finance Services, 131 Real Estate Finance Developers) continuously listed over the period 2007:1–2021:1. We find that, in addition to traditional banks, finance companies and real estate finance developers pose systemic threats to the Chinese financial system, in particular during the Global Financial Crisis and the 2015 Chinese stock crash. Finally, the outbreak of COVID-19 pandemic has put under strain the Chinese financial system, in particular the finance services.     

Hedging house price risk with futures contracts after the bubble burst

This paper extends the existing literature on managing house price risk. While previous work finds that a hedger would have reduced a large amount of variance in housing returns in Las Vegas, Nevada using Chicago Mercantile Exchange (CME) futures contracts, we show that neither static nor dynamic strategies would have maintained an effective hedge during the significant decline in housing prices. The inability to hedge house price risk using CME futures contracts ultimately calls into question the long-term viability of housing futures.     

An analysis of the literature on systemic financial risk: A survey

This article presents an analysis of the literature on systemic financial risk. To that end, we analyze and classify 266 articles that were published no later than September 2016 in the databases Scopus and Web of Knowledge; these articles were identified using the keywords “systemic risk”, “financial stability”, “financial”, “measure”, “indicator”, and “index”. They were evaluated based on 10 categories, namely, type of study, type of approach, object of study, method, spatial scope, temporal scope, context, focus, type of data used, and results. The analysis and classification of this literature made it possible to identify the remaining gaps in the literature on systemic risk; this contributes to a future research agenda on the topic. Moreover, the most influential articles in this field of research and the articles that compose the mainstream research on systemic financial risk were identified.     

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。     

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。     

金融衍生工具与银行系统性风险

从巴林银行倒闭到中航油、中石化衍生品交易巨亏,重新审视金融衍生工具与系统性风险的关系成为必然。金融衍生工具运用规模和比例呈急剧上升趋势,其初衷为对冲风险,契合金融服务实体经济功能,但由于其交易规则具有复杂性和不透明性,实施效果亟待检验。本文采用金融衍生工具视角,探索了分类金融衍生工具对银行系统性风险的影响及作用机理。结果表明,金融衍生工具会加剧银行系统性风险,包括外汇类和利率类金融衍生工具。金融衍生工具运用总体效果并不理想,且存在情境依赖,作用发挥呈现异质性。在后金融危机时代以及股市处于熊市时,金融衍生工具均加剧了银行系统性风险,在危机前则降低了银行系统性风险,但当处于牛市时则无显著影响。此外,在市场化进程高、机构持股比例高时,金融衍生工具加剧银行系统性风险的作用更为明显。本文从一个新的视角检验了银行系统性风险的影响因素,为探究其成因提供了新解释,也为未来系统性风险防控提供了新思路。     

Diversification disasters

The recent financial crisis has revealed significant externalities and systemic risks that arise from the interconnectedness of financial intermediaries’ risk portfolios. We develop a model in which the negative externality arises because intermediaries’ actions to diversify that are optimal for individual intermediaries may prove to be suboptimal for society. We show that the externality depends critically on the distributional properties of the risks. The optimal social outcome involves less risk-sharing, but also a lower probability for massive collapses of intermediaries. We derive the exact conditions under which risk-sharing restrictions create a socially preferable outcome. Our analysis has implications for regulation of financial institutions and risk management.     

Does easing monetary policy increase financial instability?

This paper develops a model featuring both a macroeconomic and a financial friction that speaks to the interaction between monetary and macro-prudential policy and to the role of US monetary and regulatory policy in the run up to the Subprime mortgage crisis. There are two main results. First, interest rate rigidities in a monopolistic banking system increase the probability of a financial crisis (relative to the case of flexible interest rate) in response to contractionary shocks to the economy, while they act as automatic macro-prudential stabilizers in response to expansionary shocks. Second, when the interest rate is the only available instrument, monetary policy faces a trade-off between macroeconomic and financial stability. This trade off is both qualitative and quantitative in response to contractionary shocks, while it is only quantitative in response to positive shocks. We show that a second instrument, such as a Pigouvian tax on credit to households on the demand side of the market, is needed to restore efficiency in the economy when both frictions are at work.     

美国次贷危机的演变趋势及其启示

次贷危机对美国乃至全球金融市场都产生了深刻的影响.次贷危机经历了从美国到全球金融市场,从次级贷款市场到整个货币市场与资本市场的演变.次贷危机的直接原因是房地产泡沫的破灭,其深层次的原因是错误的货币政策、高估的信用评级以及贷款标准的放松.为防范房地产市场的金融风险,必须严格贷款的审查标准,减少证券化中的信息不对称现象,加强对非银行金融机构的监管,并将资产价格纳入货币政策的监控体系.     

Housing markets and the financial crisis of 2007–2009: Lessons for the future

An unsustainable weakening of credit standards induced a US mortgage lending and housing bubble, whose consumption impact was amplified by innovations altering the collateral role of housing. In countries with more stable credit standards, any overshooting of construction and house prices owed more to traditional housing supply and demand factors. Housing collateral effects on consumption also varied, depending on the liquidity of housing wealth. Lessons for the future include recognizing the importance of financial innovation, regulation, housing policies, and global financial imbalances for fueling credit, construction, house price and consumption cycles that vary across countries.