scholarly journals Systemic Risk and Stability in Financial Networks

2015 ◽  
Vol 105 (2) ◽  
pp. 564-608 ◽  
Author(s):  
Daron Acemoglu ◽  
Asuman Ozdaglar ◽  
Alireza Tahbaz-Salehi
Keyword(s):  
Phase Transition ◽  
Financial Institutions ◽  
Systemic Risk ◽  
Financial Stability ◽  
Financial System ◽  
Financial Networks ◽  
Financial Contagion ◽  
Financial Network

This paper argues that the extent of financial contagion exhibits a form of phase transition: as long as the magnitude of negative shocks affecting financial institutions are sufficiently small, a more densely connected financial network (corresponding to a more diversified pattern of interbank liabilities) enhances financial stability. However, beyond a certain point, dense interconnections serve as a mechanism for the propagation of shocks, leading to a more fragile financial system. Our results thus highlight that the same factors that contribute to resilience under certain conditions may function as significant sources of systemic risk under others. (JEL D85, E44, G21, G28, L14)

scholarly journals Assessing the risk of default propagation in interconnected sectoral financial networks

2019 ◽  
Vol 8 (1) ◽  
Author(s):  
Adrià Barja ◽  
Alejandro Martínez ◽  
Alex Arenas ◽  
Pablo Fleurquin ◽  
Jordi Nin ◽  
...  
Keyword(s):  
Financial Institutions ◽  
Systemic Risk ◽  
Network Theory ◽  
Real Data ◽  
Financial Networks ◽  
Financial Network ◽  
Full System ◽  
Complex Network Theory ◽  
The Impact ◽  
Shed Light

Abstract Systemic risk of financial institutions and sectoral companies relies on their inter-dependencies. The inter-connectivity of the financial networks has proven to be crucial to understand the propagation of default, as it plays a central role to assess the impact of single default events in the full system. Here, we take advantage of complex network theory to shed light on the mechanisms behind default propagation. Using real data from the BBVA, the second largest bank in Spain, we extract a financial network from customer-supplier transactions among more than $140\text{,}000$ 140 , 000 companies, and their economic flows. Then, we introduce a computational model, inspired by the probabilities of default contagion, that allow us to obtain the main statistics of default diffusion given the network structure at individual and system levels. Our results show the exposure of different sectors to default cascades, therefore allowing for a quantification and ranking of sectors accordingly. This information is relevant to propose countermeasures to default propagation in specific scenarios.

Financial Stability, Systemic Risk, and Taxpayers’ Money—The Rationale for a Special Resolution Regime

2016 ◽  
Author(s):  
Michael Schillig
Keyword(s):  
Moral Hazard ◽  
Market Efficiency ◽  
Financial Institutions ◽  
Systemic Risk ◽  
Financial Stability ◽  
Financial System ◽  
System Stability ◽  
Cross Border ◽  
Ex Post ◽  
Ex Ante

Special resolution regimes are generally introduced with the objective of helping to ‘maintain financial stability, minimize systemic risk, protect consumers, limit moral hazard and promote market efficiency’. The recurring themes are financial stability, systemic risk, and taxpayers’ exposure to losses. This chapter explores whether and to what extent a special resolution regime for banks and financial institutions can contribute to the enhancement of financial (system) stability and can limit systemic risk. It seeks to clarify these concepts and discusses possible ex ante incentives that a (recovery and) resolution regime may provide for controlling systemic risk. Further, it focuses on ex post remedies for the curtailment of systemic risk, and considers the international and cross-border implications.

Macroprudential Policy Instruments of Central Banks

2012 ◽  
pp. 32-47
Author(s):  
S. Andryushin ◽  
V. Kuznetsova
Keyword(s):  
Systemic Risk ◽  
Financial Stability ◽  
Financial System ◽  
Policy Instruments ◽  
Central Banks ◽  
Macroprudential Policy ◽  
Policy Studies ◽  
The Future ◽  
Financial Cycles

The paper analyzes central banks macroprudencial policy and its instruments. The issues of their classification, option, design and adjustment are connected with financial stability of overall financial system and its specific institutions. The macroprudencial instruments effectiveness is evaluated from the two points: how they mitigate temporal and intersectoral systemic risk development (market, credit, and operational). The future macroprudentional policy studies directions are noted to identify the instruments, which can be used to limit the financial systemdevelopment procyclicality, mitigate the credit and financial cycles volatility.

scholarly journals Financial stability: does social activism matter?

2019 ◽  
Vol 28 (2) ◽  
pp. 183-214
Author(s):  
Peterson K. Ozili
Keyword(s):  
Gender Equality ◽  
Financial Institutions ◽  
Environmental Sustainability ◽  
Financial Stability ◽  
Social Protection ◽  
Social Activism ◽  
Financial System ◽  
System Stability ◽  
Content Type ◽  
The Impact

Purpose This study investigate the impact of social activism on financial system stability. Design/methodology/approach Financial stability was analysed from two complementary perspectives: bank-led financial stability and financial system stability driven by sector-wide credit supply. Social activism was analysed from three perspectives: gender equality advocacy, environmental sustainability advocacy and social protection advocacy. Findings The findings reveal that gender equality and environmental sustainability advocacy have significant positive effects for financial stability, whereas social protection advocacy has a significant negative effect for financial stability. In addition, social activism has negative effects for financial stability in the post-2008 financial crisis era. Finally, there are differential effects for country-groups, for instance, social activism strongly improves bank-led financial stability in African countries and for BLEND countries (countries that are eligible for International Development Association (IDA) borrowing based on per capita income levels and are also creditworthy for some borrowing from the International Bank of Restructuring and Development). The findings are relevant for the on-going debate about whether social inclusivity and activism has any economic value for the stability of businesses and the financial system. The findings have implications. Research limitations/implications The implication for policy-making is that the pressure on, or commitment of, financial institutions to be socially inclusive in all social matters such as gender equality, environmental sustainability and social protection does not guarantee stability in the financial system – whether bank-led financial stability or sector-wide financial stability. Therefore, regulators should ensure that financial institutions exercise careful discretion when adjusting their risk models to include all “social risk” factors amidst the recent pressure on corporations to be socially inclusive. Practical implications Another implication for business practice is that business leaders in financial institutions should identify the optimal level of social inclusivity that improves the stability of their corporations, because it would seem counterproductive if business leaders adopt full-scale social inclusion (or considerations) that subsequently make their corporations financially unstable which could lead to loss of shareholders wealth. Originality/value This study is the first attempt to investigate the impact of social activism on financial stability to determine whether greater social activism promotes stability or instability in the financial system.

scholarly journals Interconnectedness and systemic risk measures of Chinese financial institutions

Kybernetes ◽  
2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ming Qi ◽  
Jiawei Zhang ◽  
Jing Xiao ◽  
Pei Wang ◽  
Danyang Shi ◽  
...  
Keyword(s):  
Financial Institutions ◽  
Systemic Risk ◽  
Risk Measures ◽  
Financial System ◽  
Vulnerability Index ◽  
Content Type ◽  
Systemic Risks ◽  
Impact Index ◽  
Systemic Impact ◽  
Potential Risks

PurposeIn this paper the interconnectedness among financial institutions and the level of systemic risks of four types of Chinese financial institutions are investigated.Design/methodology/approachBy the means of RAS algorithm, the interconnection among financial institutions are illustrated. Different methods, including Linear Granger, Systemic impact index (SII), vulnerability index (VI), CoVaR, and MES are used to measure the systemic risk exposures across different institutions.FindingsThe results illustrate that big banks are more interconnected and hold the biggest scales of inter-bank transactions in the financial network. The institutions which have larger size tend to have more connection with others. Insurance and security companies contribute more to the systemic risk where as other institutions, such as trusts, financial companies, etc. may bring about severe loss and endanger the financial system as a whole.Practical implicationsSince other institutions with low levels of regulation may bring about higher extreme loss and suffer the whole system, it deserves more attention by regulators considering the contagion of potential risks in the financial system.Originality/valueThis study builds a valuable contribution by examine the systemic risks from the perspectives of both interconnection and tail risk measures. Furthermore; Four types financial institutions are investigated in this paper.

Impact of Crypto-Asset Trade on Financial Stability

2020 ◽  
pp. 210-232
Author(s):  
Nader Trabelsi
Keyword(s):  
Systemic Risk ◽  
Financial Stability ◽  
Financial System ◽  
System Stability ◽  
Copula Model ◽  
Copula Approach ◽  
The Stability ◽  
The Empirical Analysis ◽  
Global Financial System

The chapter attempts to test the hypothesis that cryptocurrencies are real independent financial instruments that pose no danger to global financial system stability. For the empirical analysis, the authors use data related to bitcoin and widely traded asset classes. They also utilize the copula approach as well as the CoVaR model. The results show a significant role of crypto-asset market in the stability of global markets. Precisely, they find a dependence between bitcoin and oil prices defined by a normal copula model. The empirical results regarding the systemic risk show that extreme changes in bitcoin prices may have an adverse effect on equity and gold markets. There are positive and significant effects of EUR, JPY, and WTI markets when bitcoin goes down. The authors have also shown that after 2016 the virtual market sudden changes are more likely to raise the whole regular financial system losses, except the energy market. These results are important for policymakers and investors.

A financial network perspective of financial institutions’ systemic risk contributions

2016 ◽  
Vol 456 ◽  
pp. 183-196 ◽  
Author(s):  
Wei-Qiang Huang ◽  
Xin-Tian Zhuang ◽  
Shuang Yao ◽  
Stan Uryasev
Keyword(s):  
Financial Institutions ◽  
Systemic Risk ◽  
Financial Network

scholarly journals Market Spread an Indicator of Systemic Risk in India

2017 ◽  
Author(s):  
Subhash Karmakar ◽  
Gautam Bandyopadhyay
Keyword(s):  
Systemic Risk ◽  
Financial Stability ◽  
Risk Estimation ◽  
Market Price ◽  
Financial System ◽  
Price Difference ◽  
Z Score ◽  
Reserve Bank ◽  
The Mean ◽  
Reserve Bank Of India

The Estimation of systemic risk in India is still in its infancy stage. There are several methods which are available but none of the methods are fully compatible to forecast the systemic risk since under different circumstances the factors responsible for the risk differs. In this paper the systemic risk estimation in India being carried out based on spread in daily stock market price(Difference between the bid and ask price of a share) of the top 100 firms in India according to market capitalization for the period of July2007 to March 2016. The results were compared with the Financial Stability Report published by Reserve Bank Of India for the period of March 2010 to June 2016.The results clearly indicates that there exits relationship between market illiquidity represented by spread and risks associated with the Financial System. In most of the cases the Z score (deviation from the mean/Standard Deviation) of the spread has become negative which provides the spread which is farther from the mean, also a good indicator of volatility in market and risk to financial system. It is also seen that the Systemic Risk Survey conducted by Reserve Bank of India which started during October 2011 has supported the results.

scholarly journals Measuring Systemic Risk of Banking in Indonesia: Conditional Value at Risk Model Application

2017 ◽  
Vol 6 (2) ◽  
pp. 301-318
Author(s):  
Harjum Muharam ◽  
Erwin Erwin
Keyword(s):  
At Risk ◽  
Financial Institutions ◽  
Systemic Risk ◽  
Value At Risk ◽  
Risk Model ◽  
Financial System ◽  
Conditional Value At Risk ◽  
Spearman Correlation ◽  
Weak Correlation ◽  
Model Application

Systemic risk is a risk of collapse of the financial system that would cause the financial system is not functioning properly. Measurement of systemic risk in the financial institutions, especially banks are crucial, because banks are highly vulnerable to financial crisis. In this study, to estimate the conditional value-at-risk (CoVaR) used quantile regression. Samples in this study of 9 banks have total assets of the largest in Indonesia. Testing the correlation between VaR and ΔCoVaR in this study using Spearman correlation and Kendall's Tau. There are five banks that have a significant correlation between VaR and ΔCoVaR, meanwhile four others banks in the sample did not have a significant correlation. However, the correlation coefficient is below 0.50, which indicates that there is a weak correlation between VaR and CoVaR.DOI: 10.15408/sjie.v6i2.5296

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