scholarly journals Multi-Agent Financial Network (MAFN) Model of US Collateralized Debt Obligations (CDO)

2014 ◽  
pp. 561-590 ◽  
Author(s):  
Sheri M. Markose ◽  
Bewaji Oluwasegun ◽  
Simone Giansante
Keyword(s):  
Systemic Risk ◽  
Stress Test ◽  
Balance Sheet ◽  
Collateralized Debt Obligations ◽  
Financial Network ◽  
Balance Sheets ◽  
The Us ◽  
Credit Risk Transfer ◽  
Multi Agent ◽  
Collateralized Debt

A database driven multi-agent model has been developed with automated access to US bank level FDIC Call Reports that yield data on balance sheet and off balance sheet activity, respectively, in Residential Mortgage Backed Securities (RMBS) and Credit Default Swaps (CDS). The simultaneous accumulation of RMBS assets on US banks' balance sheets and also large counterparty exposures from CDS positions characterized the $2 trillion Collateralized Debt Obligation (CDO) market. The latter imploded at the end of 2007 with large scale systemic risk consequences. Based on US FDIC bank data, that could have been available to the regulator at the time, the authors investigate how a CDS negative carry trade combined with incentives provided by Basel II and its precursor in the US, the Joint Agencies Rule 66 Federal Regulation No. 56914, which became effective on January 1, 2002, on synthetic securitization and Credit Risk Transfer (CRT), led to the unsustainable trends and systemic risk. The resultant market structure with heavy concentration in CDS activity involving 5 US banks can be shown to present too interconnected to fail systemic risk outcomes. The simulation package can generate the financial network of obligations of the US banks in the CDS market. The authors aim to show how such a Multi-Agent Financial Network (MAFN) model is well suited to monitor bank activity and to stress test policy for perverse incentives on an ongoing basis.

Multi-Agent Financial Network (MAFN) Model of US Collateralized Debt Obligations (CDO)

2013 ◽  
pp. 225-254 ◽  
Author(s):  
Sheri M. Markose ◽  
Bewaji Oluwasegun ◽  
Simone Giansante
Keyword(s):  
Systemic Risk ◽  
Stress Test ◽  
Balance Sheet ◽  
Collateralized Debt Obligations ◽  
Financial Network ◽  
Balance Sheets ◽  
The Us ◽  
Credit Risk Transfer ◽  
Multi Agent ◽  
Collateralized Debt

A database driven multi-agent model has been developed with automated access to US bank level FDIC Call Reports that yield data on balance sheet and off balance sheet activity, respectively, in Residential Mortgage Backed Securities (RMBS) and Credit Default Swaps (CDS). The simultaneous accumulation of RMBS assets on US banks’ balance sheets and also large counterparty exposures from CDS positions characterized the $2 trillion Collateralized Debt Obligation (CDO) market. The latter imploded at the end of 2007 with large scale systemic risk consequences. Based on US FDIC bank data, that could have been available to the regulator at the time, the authors investigate how a CDS negative carry trade combined with incentives provided by Basel II and its precursor in the US, the Joint Agencies Rule 66 Federal Regulation No. 56914, which became effective on January 1, 2002, on synthetic securitization and Credit Risk Transfer (CRT), led to the unsustainable trends and systemic risk. The resultant market structure with heavy concentration in CDS activity involving 5 US banks can be shown to present too interconnected to fail systemic risk outcomes. The simulation package can generate the financial network of obligations of the US banks in the CDS market. The authors aim to show how such a Multi-Agent Financial Network (MAFN) model is well suited to monitor bank activity and to stress test policy for perverse incentives on an ongoing basis.

scholarly journals How financial products organize spatial networks: Analyzing collateralized debt obligations and collateralized loan obligations as “networked products”

2021 ◽  
pp. 0308518X2110296
Author(s):  
Jonathan Beaverstock ◽  
Adam Leaver ◽  
Daniel Tischer
Keyword(s):  
Financial Networks ◽  
Regulatory Regime ◽  
Collateralized Debt Obligations ◽  
The Us ◽  
Collateralized Debt Obligation ◽  
Role Based ◽  
Collateralized Debt ◽  
Collateralized Loan Obligation ◽  
Debt Obligation ◽  
Peak Value

During the 2010s, collateralized loan obligations rapidly became a trillion-dollar industry, mirroring the growth profile and peak value of its cousin—collateralized debt obligations—in the 2000s. Yet, despite similarities in product form and growth trajectory, surprisingly little is known about how these markets evolved spatially and relationally. This paper fills that knowledge gap by asking two questions: how did each network adapt to achieve scale at speed across different jurisdictions; and to what extent does the spatial and relational organization of today's collateralized loan obligation structuration network, mirror that of collateralized debt obligations pre-crisis? To answer those questions, we draw on the global financial networks approach, developing our own concept of the networked product to explore the agentic qualities of collateralized debt obligations and collateralized loan obligations—specifically how their technical and regulatory “needs” shape the roles and jurisdictions enrolled in a global financial network. We use social network analysis to map and analyze the evolving spatial and relational organization that nurtured this growth, drawing on data harvested from offering circulars. We find that collateralized debt obligations spread from the US to Europe through a process of transduplication—that similar role-based network relations were reproduced from one regulatory regime to another. We also find a strong correlation between pre-crisis collateralized debt obligation- and post-crisis collateralized loan obligation-global financial networks in both US$- and €-denominations, with often the same network participants involved in each. We conclude by reflecting on the prosaic way financial markets for ostensibly complex products reproduce and the capacity for network stabilities to produce market instabilities.

Collateralized Debt Obligations, Collateralized Bond Obligations, and Collateralized Loan Obligations

2019 ◽  
pp. 421-434
Author(s):  
Robert Eckrote ◽  
Christopher Milliken ◽  
Ehsan Nikbakht ◽  
Andrew C. Spieler
Keyword(s):  
Balance Sheet ◽  
Financial System ◽  
Bank Loans ◽  
High Yield ◽  
Fixed Income ◽  
Collateralized Debt Obligations ◽  
Income Security ◽  
Structured Products ◽  
Special Purpose Vehicle ◽  
Collateralized Debt

Collateralized debt obligations (CDOs) are structured products that are issued by a special purpose vehicle with the objective of improving the issuer’s balance sheet, increasing access to illiquid securities, and/or generating a higher yield than would be offered in a traditional fixed income security. This chapter provides an overview of CDOs including a discussion on the history, structure, uses, and impact on investors and the broader financial system. CDOs can be further classified by the type of security held as collateral, such as collateralized bond obligations (CBOs), which typically hold high yield debt, and collateralized loan obligations (CLOs), which hold bank loans. These financial structured products gain notoriety for their role in the financial crisis of 2007–2008 and have since declined in popularity. Despite the negative perception that CDOs carry, securitization continues to play an important function in the financial system and offers benefits to issuers and consumers as long as both parties use the end product responsibly.

scholarly journals Basic Indicators of Systemic Risk in the EU Banking Sector. Implications for Banking Regulation

2015 ◽  
Vol 47 (1) ◽  
pp. 36-55 ◽  
Author(s):  
Katarzyna Sum
Keyword(s):  
Systemic Risk ◽  
Banking Sector ◽  
Empirical Investigation ◽  
Stress Test ◽  
Balance Sheet ◽  
Banking Regulation ◽  
Risk Regulation ◽  
Test Analysis ◽  
Supranational Level ◽  
The Eu

Abstract The issue of systemic risk regulation and management has gained substantial attention following the latest financial crisis. In the case of the EU it became crucial to deal with the systemic risk problem on a supranational level since the banking sectors of the member countries are highly integrated. While substantial measures have been undertaken to mitigate systemic risk in the EU, the discussion of further reforms continues. This study’s goal is to assess basic indicators of systemic risk in the EU banking sector by using three complementary methods: a forward-looking stock market data analysis, an EU-stress test analysis for systemically important banks, and an empirical investigation of the relation between banking regulation and systemic risk as measured by bank balance sheet indicators. The results lead to a recommendation of further necessary regulatory reforms, which appear in the conclusion.

scholarly journals Measuring Systemic Risk in the Polish Banking System by Means of the Risk-Based Balance Sheets Method

2012 ◽  
Vol 12 (2) ◽  
pp. 7-18 ◽  
Author(s):  
Renata Karkowska
Keyword(s):  
Systemic Risk ◽  
Global Financial Crisis ◽  
Balance Sheet ◽  
Banking System ◽  
Risk Modeling ◽  
Management Tools ◽  
Balance Sheets ◽  
New Directions ◽  
The Global Financial Crisis ◽  
New Framework

Abstract The complex connections, spillovers and feedbacks of the global financial crisis remind how important it is to improve the analysis of risk modeling. This article introduces a new framework for mitigating systemic risk by using a risk-adjusted balance sheet approach. In this regard, the analysis of individual banks in Poland shows potential risk which could threaten all the financial system. Traditional banking models do not adequately measure risk position of financial institutions and cannot be used to understand risk within and between balance sheets in the financial sector. A fundamental subject is that accounting balance sheets do not indicate risk exposures, which are forward-looking. The paper concludes new directions for measuring systemic risk by using Merton’s model. It shows how risk management tools can be applied in new ways to measure and analyze systemic risk in the Polish banking system.

scholarly journals Public Wealth in the United States

2019 ◽  
Vol 19 (139) ◽  
pp. 1
Author(s):  
Fabien Gonguet ◽  
Klaus-Peter Hellwig
Keyword(s):  
World War Ii ◽  
Public Sector ◽  
Global Financial Crisis ◽  
Stress Test ◽  
Balance Sheet ◽  
The United States ◽  
Net Worth ◽  
The Us ◽  
History Of ◽  
The Global Financial Crisis

We analyze the US public sector balance sheet and project it forward under the assumption that current policies remain in place. We first document the history of the balance sheet and its components since World War II, with a detailed account of its evolution during and after the global financial crisis. While, based on assets and liabilities alone, public sector net worth is negative, additional challenges arise from commitments to future spending implied by current legislation and demographic trends. To quantify the risks to the balance sheet, we then apply the macroeconomic scenarios from the Federal Reserve’s bank stress test to the public sector balance sheet.

scholarly journals Extreme Portfolio Loss Correlations in Credit Risk

Risks ◽  
2018 ◽  
Vol 6 (3) ◽  
pp. 72
Author(s):  
Andreas Mühlbacher ◽  
Thomas Guhr
Keyword(s):  
Systemic Risk ◽  
Matrix Approach ◽  
Collateralized Debt Obligations ◽  
Large Loss ◽  
Mutual Dependence ◽  
Collateralized Debt ◽  
The Stability ◽  
Credit Contracts ◽  
Portfolio Loss ◽  
Systemic Risk Factors

The stability of the financial system is associated with systemic risk factors such as the concurrent default of numerous small obligors. Hence, it is of utmost importance to study the mutual dependence of losses for different creditors in the case of large, overlapping credit portfolios. We analytically calculate the multivariate joint loss distribution of several credit portfolios on a non-stationary market. To take fluctuating asset correlations into account, we use an random matrix approach which preserves, as a much appreciated side effect, analytical tractability and drastically reduces the number of parameters. We show that, for two disjoint credit portfolios, diversification does not work in a correlated market. Additionally, we find large concurrent portfolio losses to be rather likely. We show that significant correlations of the losses emerge not only for large portfolios with thousands of credit contracts, but also for small portfolios consisting of a few credit contracts only. Furthermore, we include subordination levels, which were established in collateralized debt obligations to protect the more senior tranches from high losses. We analytically corroborate the observation that an extreme loss of the subordinated creditor is likely to also yield a large loss of the senior creditor.

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