The Impact of Sovereign Shocks

2020 ◽  
Vol 66 (7) ◽  
pp. 3113-3132
Author(s):  
Gerardo Manzo ◽  
Antonio Picca
Keyword(s):  
Financial Institutions ◽  
Systemic Risk ◽  
Dynamic Propagation ◽  
Novel Approach ◽  
Shock Transmission ◽  
The Impact

This paper studies the dynamic propagation mechanisms of systemic risk shocks within and across macrosystems of governments and financial institutions. We propose a novel approach to identify relevant systemic shocks and to classify them into sovereign or banking categories. We find that sovereign shocks have a significant and persistent impact on the probability of a collective banking default. We also explore channels through which these shocks propagate and identify how sovereign fiscal fragility and banking exposure are relevant mechanisms of shock transmission. This paper was accepted by Gustavo Manso, finance.

The Myth of Diversification: The Destabilizing Impact of Diversification on Financial Institutions

2019 ◽  
Vol 5 (2) ◽  
pp. 179-219
Author(s):  
Kwon-Yong Jin
Keyword(s):  
Risk Management ◽  
Theoretical Model ◽  
Financial Institutions ◽  
Systemic Risk ◽  
Positive Element ◽  
Mitigation Measures ◽  
Financial Conglomerates ◽  
Failure Risk ◽  
The Stability ◽  
The Impact

Abstract This article analyses the impact of asset and activity diversification on the stability of major financial institutions. Diversification is typically viewed as a positive element in risk management. However, examining recent examples concerning diversified multinational financial institutions and a theoretical model of failure risk facing them, this article demonstrates that under certain conditions, diversification can actually increase systemic risk. Financial conglomerates can be ‘too big to manage’, they can become too similar to each other and susceptible to coordinated failure, and, most importantly, catastrophic losses in one part of the firm can overwhelm the whole firm. Based on this finding, this article proposes a number of mitigation measures to limit intra-firm spillover and to make the resolution of troubled financial institutions smoother.

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.

Bank mergers: the cyclical behaviour of regulation, risk and returns

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mohamad Hassan ◽  
Evangelos Giouvris
Keyword(s):  
Technical Efficiency ◽  
Financial Institutions ◽  
Systemic Risk ◽  
Financial Institution ◽  
Capital Requirements ◽  
Policy Implications ◽  
Bank Mergers ◽  
Content Type ◽  
Risk Contribution ◽  
The Impact

Purpose The purpose of this paper is to examine the effects of bank mergers on systemic and systematic risks on the relative merits of product and market diversification strategies. It also observes determinants of M&A deals criteria, product and market diversification positioning, crisis threshold and other regulatory and market factors. Design/methodology/approach This research examines the impact and association between merger announcements and regulatory reforms at bank and system levels by investigating the impact of various bank consolidation strategies on firms’ risks. We estimate beta(s) as an index of financial institutions’ systematic risk. We then develop an index of the estimated equity value loss as the long-rum marginal expected shortfall (LRMES). LRMES contributes to compute systemic risk (SRISK) contribution of these firms, which is the capital that a firm is expected to need if we have another financial crisis. Findings Large acquiring banks decrease systemic risk contribution in cross-border M&As with a non-bank financial institution, and witness profitability (ROA) gains, supporting geographic diversification stability. Capital requirements, activity restrictions and bank concentration increase systemic risk contribution in national mergers. Bank mergers with investment FIs targets enhance productivity but impair technical efficiency, contrary to bank-real estate deals where technical efficiency change accompanied lower systemic risk contribution. Practical implications Financial institutions are recommended to avoid trapped capital and liquidity by efficiently using local balance sheet and strengthening them via implementing models that clearly set diversification and netting benefits to determine capital reserves and to drive capital efficiency through the clarity on product–activity–geography diversification and focus. This contributes to successful ringfencing, decreases compliance costs and maximises returns and minimises several risks including systemic risk. Social implications Policy implications: the adversative properties of bank mergers in respect of systemic risk require strict and innovative monitoring of bank mergers from the bidding level by both acquirers and targets and regulators and competition supervisory bodies. Moreover, emphasis on regulators/governments intervention and role, as it provides a stabilising factor of the markets and consecutively lower systemic risk even if the systematic idiosyncratic risk contribution was significant. However, such roles have to be well planned and scaled to avoid providing motives for banks to seek too-big-too-fail or too-big-to-discipline status. Originality/value This research contributes to the renewing regulatory debate on banks sustainable structures by examining the risk effect of bank diversification versus focus. The authors aim to address the multidimensional impacts and risks inherent to M&A deals, by examining the extent of the interconnectedness of M&A and its implications within and beyond the banking sector.

scholarly journals Systemic risks for investments under global uncertainty

2020 ◽  
Keyword(s):  
Comparative Analysis ◽  
Financial Institutions ◽  
Systemic Risk ◽  
Business Models ◽  
Financial System ◽  
Systemic Risks ◽  
Key Features ◽  
Global Uncertainty ◽  
The Impact ◽  
Global Financial System

Under growing uncertainty and interdependence, systemic risks are essential for the effective functioning of the global financial system. Therefore, the subject of the proposed study is systemic risks for the global financial system. The goal of this work is to identify and disclose the role of systemic risks in carrying out investment activities. The article solves the following objectives: to identify and reveal key features and characteristics of systemic risks, to identify new challenges in systemic risk management, to identify new manifestations of systemic risks. To achieve the goal of the study, the following methods are used: system-structural, synergetic, method of comparative analysis, method of analysis and synthesis. The study reveals the following results. The main approaches to defining the concept of systemic risks are identified and their comparative analysis is carried out. The main approaches to measuring systemic risks and measurement criteria are identified. The differences between the concepts of systemic and systematic risk are revealed, and the mechanism of their interrelation is identified. New systemic risks in the conditions of global uncertainty are identified. The impact of the COVID-19 pandemic on systemic risks is determined. The main new types of risks and threats to financial stability in the long run are identified. The main directions of response of financial regulatory bodies to new systemic risks are determined. The main effects of the impact of measures to stimulate economic growth on the state of financial markets and investment activities are identified. The conclusions of the study are as follows. It is determined that there is no unanimous definition of systemic risk. Key features of systemic risks are identified, such as unpredictability, large-scale impact, spillover effect, impact on the real sector of the economy, etc. It is determined that when measuring systemic risk there are two problems: the measure of quantitative expression of systemic risk as a unit and the distribution of systemic risk between individual financial institutions. It is revealed that systemic risk can be a source of systematic risks. The COVID-19 pandemic, as an extraordinary macroeconomic shock, is belived to lead to new systemic risks. It is revealed that new types of systemic risks include, in particular, default risks, complexity of the macroeconomic environment, risks of sovereign financing, risk of lack of liquidity. The impact of new systemic risks on investment activities is revealed, in particular, changes in the business models of financial institutions, changes in the strategies of investment funds, lower ratings of debt securities, increasing the cost of debt financing, lack of liquidity.

Diversity and the Performance of Selected Financial Institutions of Asia

2018 ◽  
Vol 2 (1) ◽  
pp. 1
Author(s):  
Shafaque Fatima ◽  
Saqib Sharif
Keyword(s):  
Financial Institutions ◽  
Positive Impact ◽  
Financial Institution ◽  
Gender Diversity ◽  
Business Case ◽  
Ordinary Least Squares ◽  
Cross Sectional ◽  
Age Diversity ◽  
The Impact ◽  
Nationality Diversity

Linking with the business case for diversity, this study examines whether the top management team (TMT) and the board of directors (BODs) diversity has a positive impact on financial institution (FI) performance in select countries of Asia least researched domain. We use data from 119 financial institutions across Asia for the year 2015, initially 1,447 institutions; however, incomplete data was excluded from final analysis. We use three proxies for diversity, that is, nationality diversity, gender diversity, and age diversity of TMT and BODs. To investigate the impact of TMT and BODs diversity, cross-sectional ordinary least-squares estimation is applied, using Return on Average Assets (ROAA%) as a measure of performance.  We find that nationality diversity and age diversity is positively and significantly related to FIs performance. Our evidence indicates that executives and board members with diverse exposure and younger age improve FIs profitability. However, there is no significant relationship between gender and FIs performance.

Systemic Risk: The Impact of COVID-19

2020 ◽  
Author(s):  
Muhammad Suhail Rizwan ◽  
Ghufran Ahmad ◽  
Dawood Ashraf
Keyword(s):  
Systemic Risk ◽  
The Impact

Global Algorithmic Capital Markets

2018 ◽  
Keyword(s):  
Public Policy ◽  
Capital Markets ◽  
Systemic Risk ◽  
High Frequency ◽  
Investor Protection ◽  
High Frequency Trading ◽  
Market Making ◽  
Market Governance ◽  
Policy Objectives ◽  
The Impact

This book illustrates and assesses the dramatic recent transformations in capital markets worldwide and the impact of those transformations. ‘Market making’ by humans in centralized markets has been replaced by supercomputers and algorithmic high frequency trading operating in often highly fragmented markets. How do recent market changes impact on core public policy objectives such as investor protection, reduction of systemic risk, fairness, efficiency, and transparency in markets? The operation and health of capital markets affect all of us and have profound implications for equality and justice in society. This unique set of chapters by leading scholars, industry insiders, and regulators sheds light on these and related questions and discusses ways to strengthen market governance for the benefit of society at large.

scholarly journals Brain drain and brain gain in Russia: Analyzing international migration of researchers by discipline using Scopus bibliometric data 1996–2020

2021 ◽  
Author(s):  
Alexander Subbotin ◽  
Samin Aref
Keyword(s):  
Brain Drain ◽  
Policy Development ◽  
Donor Country ◽  
International Mobility ◽  
Science System ◽  
Migration Rates ◽  
Net Migration ◽  
Novel Approach ◽  
Five Disciplines ◽  
The Impact

AbstractWe study international mobility in academia, with a focus on the migration of published researchers to and from Russia. Using an exhaustive set of over 2.4 million Scopus publications, we analyze all researchers who have published with a Russian affiliation address in Scopus-indexed sources in 1996–2020. The migration of researchers is observed through the changes in their affiliation addresses, which altered their mode countries of affiliation across different years. While only 5.2% of these researchers were internationally mobile, they accounted for a substantial proportion of citations. Our estimates of net migration rates indicate that while Russia was a donor country in the late 1990s and early 2000s, it has experienced a relatively balanced circulation of researchers in more recent years. These findings suggest that the current trends in scholarly migration in Russia could be better framed as brain circulation, rather than as brain drain. Overall, researchers emigrating from Russia outnumbered and outperformed researchers immigrating to Russia. Our analysis on the subject categories of publication venues shows that in the past 25 years, Russia has, overall, suffered a net loss in most disciplines, and most notably in the five disciplines of neuroscience, decision sciences, mathematics, biochemistry, and pharmacology. We demonstrate the robustness of our main findings under random exclusion of data and changes in numeric parameters. Our substantive results shed light on new aspects of international mobility in academia, and on the impact of this mobility on a national science system, which have direct implications for policy development. Methodologically, our novel approach to handling big data can be adopted as a framework of analysis for studying scholarly migration in other countries.

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