scholarly journals Bank Systemic Risk Exposure and Office Market Interconnectedness

2021 ◽  
pp. 106311
Author(s):  
Roland Füss ◽  
Daniel Ruf
Keyword(s):  
Systemic Risk ◽  
Risk Exposure ◽  
Office Market

Risk Factors of Collateralized Loan Obligations and Corporate Bonds

2020 ◽  
Vol 32 (6) ◽  
pp. 347-355
Author(s):  
Mark Wahrenburg ◽  
Andreas Barth ◽  
Mohammad Izadi ◽  
Anas Rahhal
Keyword(s):  
Risk Factors ◽  
Risk Factor ◽  
Asset Pricing ◽  
Systemic Risk ◽  
Corporate Bonds ◽  
Risk Exposure ◽  
Expected Returns ◽  
Yield Spreads ◽  
Pricing Factors ◽  
Return Difference

AbstractStructured products like collateralized loan obligations (CLOs) tend to offer significantly higher yield spreads than corporate bonds (CBs) with the same rating. At the same time, empirical evidence does not indicate that this higher yield is reduced by higher default losses of CLOs. The evidence thus suggests that CLOs offer higher expected returns compared to CB with similar credit risk. This study aims to analyze whether this return difference is captured by asset pricing factors. We show that market risk is the predominant risk factor for both CBs and CLOs. CLO investors, however, additionally demand a premium for their risk exposure towards systemic risk. This premium is inversely related to the rating class of the CLO.

scholarly journals Analysis of the systemic credit risk component in the banking sector of the Republic of Serbia

2021 ◽  
Vol 69 (3-4) ◽  
pp. 65-79
Author(s):  
Svetlana Drljača-Kanazir
Keyword(s):  
Credit Risk ◽  
Systemic Risk ◽  
Banking Sector ◽  
Small Sample ◽  
Risk Exposure ◽  
Loan Portfolio ◽  
Policy Makers ◽  
Significant Difference ◽  
The Republic ◽  
Macroeconomic Aggregates

The subject of this research paper is quantification of the degree of systemic risk exposure of the Serbian banking sector's loan portfolio in the period from 2008Q4 to 2019Q3, including by main commercial segments (corporate and retail). The Basel Committee on Banking Supervision, under its regulatory framework, makes a distinction between corporate and retail loans regarding the exposure to systemic risk. Based on the above, the following hypotheses are set: a) There is a significant difference in systemic risk exposure between corporate and retail loans in the Serbian banking sector and b) Forecasting the exposure to systemic risk of the entire Serbian banking sector can be performed on the basis of corporate loans due to the specificity of the economic system of the Republic of Serbia. The results of the research corroborated the truthfulness of both hypotheses, which has a multifold significance for commercial banks' management, macroeconomic and macroprudential policy makers. First, banking and accounting regulations require stress-testing of probability of default on the change in macroeconomic aggregates and its impact on the bank's capital. Second, a bank's sensitivity to changes in macroeconomic aggregates predominantly depends on the loan portfolio structure by commercial segments. Third, the conclusion of the academic elite that the development of the capital market would lead to an increase in the macroeconomic stability of the Republic of Serbia and reduce the procyclicality of credit risk was confirmed. We used the autoregressive distributed lags model (ARDL model) because there is a difference in order of integration in the observed time series (I(0) and I(1)), and because this method provides good results for relatively small sample data sizes.

Systemic risk and firm size: is notional amount a good metric?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
David Reiffen ◽  
Bruce Tuckman
Keyword(s):  
Systemic Risk ◽  
Risk Exposure ◽  
Data Set ◽  
Content Type ◽  
Financial Regulations ◽  
Interest Rate Swaps ◽  
Regulatory Data ◽  
Size Measure ◽  
Good Policy ◽  
The Relationship

Purpose Many recently enacted financial regulations exempt smaller entities. While the literature on systemic risk provides efficiency justifications for certain exemptions, the efficiency rationale depends on measuring size appropriately. This paper aims to argue that notional amount, the metric used in derivatives regulations, is a flawed measure of an entity’s contribution to systemic risk. This study discusses an alternative size measure – entity-netted notionals or ENNs – which better reflects risk exposure as discussed in that literature and provides empirical evidence on these two metrics. Design/methodology/approach This study first discusses the relationship between the systemic risk literature and size-based exemptions. This study then describes the current metric and our risk-based alternative. Finally, this paper presents regulatory data on US interest rate swaps (IRS) and uses this to characterize some features of risk exposure. Findings The unique data set provides empirical insight into how well the size metric used in current regulations corresponds to a more theoretically oriented measure. This study finds the relationship between the metrics is fairly weak for entities for whom the size-based exemption will soon be ending, and provide an empirical basis for understanding why they differ. This study also provides evidence on the correlation of risk within this group of entities. Practical implications The paper has important implications for regulation of derivatives and financial markets more generally. To the extent exemptions for small entities make good policy, having the appropriate metric is critical. As such, the metric could be a valuable tool for regulators. Originality/value This paper examines the likely objectives of size-based exemptions from financial regulations and relates them to the systemic risk literature. It provides a unique empirical description of IRS positions, which allows us to examine the relationship between the metric used by regulators and our alternative.

scholarly journals The Stability of Interbank Market Network: A Perspective on Contagion and Risk Sharing

2016 ◽  
Vol 2016 ◽  
pp. 1-8 ◽  
Author(s):  
Chi Xie ◽  
Yang Liu ◽  
Gang-Jin Wang ◽  
Yan Xu
Keyword(s):  
Commercial Bank ◽  
Systemic Risk ◽  
Commercial Banks ◽  
Risk Sharing ◽  
Main Channel ◽  
Risk Exposure ◽  
Interbank Market ◽  
Bank Of China ◽  
The Stability ◽  
Market Networks

As an important part of the financial system, interbank market provides banks with liquidity and credit lending and also is the main channel for risk contagion. In this paper, we test the existence of systematic risk contagion within the Chinese interbank market. By building the networks of the Chinese interbank market for each year and using the measure of mutual information, we quantitatively detect the changes of interbank market networks and observe that the correlations between banks become increasingly tighter in recent years. With the bilateral risk exposure among Chinese listed commercial banks, we find that the possibility of systemic risk contagion in Chinese interbank market is fairly small. But of great concern on each individual bank, the matter is different. Our simulation shows that the failures of three special banks (i.e., Agricultural Bank of China and Bank of China and Industrial and Commercial Bank of China) most likely lead to systemic risk contagion. Furthermore, we test the antirisk ability of the Chinese interbank market from the perspective of risk sharing and discover that the interbank market is stable when the loss scale is lower than forty percent of banks’ total core capital.

scholarly journals Exploring Systemic Risk of Chinese SIFIs using a Simplified SRISK Model

2018 ◽  
Vol 15 (3) ◽  
pp. 469
Author(s):  
Muhammad Jamal Haider ◽  
Adrian Hemmes ◽  
Gao Changchun ◽  
Tayyaba Akram
Keyword(s):  
Financial Crisis ◽  
Financial Institutions ◽  
Systemic Risk ◽  
Risk Index ◽  
Historical Context ◽  
Risk Exposure ◽  
2008 Financial Crisis ◽  
Increasing Trend ◽  
Economic Slowdown ◽  
The 2008 Financial Crisis

The exposure of banks to systemic risk has been rising in an ever more financialized and interconnected economy. In China, economic slowdown and more non-performing loans mean that the financial system has operate in an increasingly stressed environment, strengthening the vulnerability of future systemic shortfall. In this study, systemic risk in Chinese systematically important financial institutions (SIFIs) is analyzed using a simplified SRISK model. The results are set into historical context, its characteristics are illustrated, and compared to an existing risk index. With that the study contributes to the existing literature by exploring application the SRISK model from a regulatory framework and illustrating some of its implications on Chinese SIFIs. The key findings include (1) an increasing trend of systemic risk exposure and (2) evidence for a divergence between volatility and systemic risk since the 2008 financial crisis.

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