تامین بودجه کوتاه مدت عمده فروشی و ریسک سیستمیک : یک رویکرد CoVaR جهانی

We use the CoVaR approach to identify the main factors behind systemic risk in a set of large international banks. We find that short-term wholesale funding is a key determinant in triggering systemic risk episodes. In contrast, we find weaker evidence that either size or leverage contributes to systemic risk within the class of large international banks. We also show that asymmetries based on the sign of bank returns play an important role in capturing the sensitivity of system-wide risk to individual bank returns. Since short-term wholesale funding emerges as the most relevant systemic factor, our results support the Basel Committee’s proposal to introduce a net stable funding ratio, penalizing excessive exposure to liquidity risk.

The fact that financial markets move more closely together during times of crisis is well documented. Conditional correlations between assets are much higher when market returns are low in periods of financial stress (see King and Wadhwani, 1990 and Ang et al., 2006). Co-movements typically arise from common exposures to shocks, but also from the propagation of distress associated with a decline in the market value of assets held by individual institutions, a phenomenon we dub ‘balance sheet contraction’ and which is of particular concern in the financial industry. The recent crisis has shown how the failure of large individual credit institutions can have dramatic effects on the overall financial system and, eventually, spread to the real economy. As a result, international financial policy institutions are currently designing a new regulatory framework for the so-called systemically important financial institutions (SIFIs) in order to ensure global financial stability and prevent, or at least mitigate, future episodes of systemic contagion.1 In this paper, we analyze the main determinants of systemic contagion from an individual institution to the international financial system, i.e., the empirical drivers of tail-risk interdependence. We examine a sample of large international banks that are the target of current regulatory efforts and that would likely be considered too-big-to-fail by central banks. These banks are characterized by their large capitalization, global activity, cross-border exposures and/or representative size in the local industry. Using data spanning 2001–2009, we explicitly measure the contribution of the balance sheet contraction of these institutions to international financial distress. As regulators seek for meaningful measures of interconnectedness (Walter, 2011), this paper contributes to the current debate on prudential regulatory requirements. Our study builds on the novel procedure put forward by Adrian and Brunnermeier (2011), the so-called CoVaR methodology, and generalizes it in several ways in order to deal with the characteristics of a sample of 54 international banks and to address the asymmetric patterns that may underlie tail dependence. The main empirical findings of our analysis can be summarized as follows: First, we find that short-term wholesale funding is the most reliable balance sheet determinant of a bank’s contribution to global systemic risk. Financial institutions use short-term wholesale funding to supplement retail deposits and expand their balance sheets. These funds are typically raised on a short-term rollover basis with instruments such as large-denomination certificates of deposit, brokered deposits, central bank funds, commercial paper and repurchase agreements. Whereas it is agreed that wholesale funding provides certain managerial advantages (see Huang and Ratnovski (2011) for a discussion), the effects on systemic risk of an overreliance on these liabilities were under-recognized prior to the recent financial crisis. Banks with excessive short-term funding ratios are typically more interconnected to other banks, exposed to a high degree of maturity mismatch, and more vulnerable to market conditions and liquidity risk. These features can critically increase the vulnerability not only of interbank markets and money market mutual funds, which act as wholesale providers of liquidity, but eventually of the whole financial system. According to our analysis, an increase of one percentage point in short-term wholesale funding leads to an increase in the contribution to systemic risk of 16 basis points for quarterly asset returns at the 1-quarter horizon and 43 basis points at the 1-year horizon. These results support current regulatory initiatives aimed at increasing bank liquidity buffers to lessen asset-liability maturity mismatches as a mechanism to mitigate individual liquidity risk, such as the liquidity coverage ratio recently laid out by the Basel Committee on Banking Supervision under the new Basel III regulatory framework.2 This paper shows that these initiatives may also help to reduce the likelihood of systemic contagion. In contrast to the role played by short-term wholesale funding, we find weaker evidence that either size or leverage is helpful in predicting future systemic risk within our set of large international banks. Consequently, the empirical analysis in this paper provides clear evidence of the major role played by short-term wholesale funding in the spreading of systemic risk in global markets. Second, our analysis reveals a strong degree of asymmetric response that has not been discussed in the existing literature on systemic risk. We examine the asymmetric sensitivity of the system to an individual bank based on the sign of bank returns. A distressed systemic institution is likely to have greater spillover effects on the rest of the financial system when its balance sheet is contracting, and therefore an empirical analysis of tail risk-dependence within a financial system should distinguish between episodes of expanding and contracting balance sheets. Our results show that individual balance sheet contraction produces a significant negative spillover on the Value-at-Risk (VaR) threshold of the global index. Whereas the sensitivity of left tail global returns to a shock in an institution’s market valued asset returns is on average about 0.3, the elasticity conditional on an institution having a shrinking balance sheet is more than two times larger. Therefore, controlling for balance sheet contraction is crucial in order to rank financial institutions by their contribution to systemic risk. Third, we find evidence that the banks that received prompt recapitalization in Q4 2008 were able to improve their relative position during the crisis period. In contrast, the banks that were rescued by public authorities later in Q4 2009 became relatively more systemic during the crisis period. In other words, the ripple effects from their individual distress were more widespread throughout the financial system. This conclusion is based on the results showing that the credit crisis added 0.1 percentage points to the co-movement between individual and global asset returns, while recapitalization during the crisis period dampened co-movement by 0.14 percentage points. Consequently, the timing of recapitalization is also important for systemic risk. Finally, our paper highlights the relevance of crisis episodes in measuring systemic risk and of the response policy actions. Our results show that the marginal contribution of an individual bank’s financial distress to the 1% quantile of the system returns increases from 1 percent in an average quarter between 2001 and 2009 to 1.4 percent in a quarter characterized by money market turbulence at the height of the global financial crisis during Q3 2007–Q1 2009. The remainder of the paper is organized as follows. Section 2 surveys the most representative literature on systemic risk, highlighting the differential features of the CoVaR approach. Section 3 discusses the data employed in the two stages of our analysis. Section 4 lays out our CoVaR estimation framework and shows the estimates of individual contributions to systemic risk. Section 5 analyzes the determinants of systemic risk and reports the results of several robustness checks. Finally, Section 6 summarizes our main findings and concludes with policy recommendations.

In this paper we examine some of the main factors driving systemic risk in a global framework. We focus on a set of large international institutions that would, in principle, be deemed “too big to fail” by financial regulators and are therefore of major interest for policy makers. For this class of firms, the evidence based on the CoVaR methodology indicates that short-term wholesale funding – a variable strongly related to interconnectedness and liquidity risk exposure – is positively and significantly related to systemic risk, whereas other features of the firm, such as leverage or relative size, seem to provide little incremental information about systemic risk. This suggests that short-term wholesale funding subsumes most of the relevant information on systemic risk conveyed by other characteristics of the firm. The fact that systemic risk can be predicted by balance sheet variables – short-term wholesale funding, in particular – with a sufficiently large forecast horizon has important policy implications, as it prompts the regulator to take pre-emptive action against banks with riskier positions. We also compare the relative influence of balance sheet variables on systemic risk for EMU and US banks. Our findings suggest that the short-term wholesale funding channel has been operating mainly through non-US banks, especially via EMU banks. One possible explanation for this fact is that banks in the newly created monetary area had an increased pool of funding available due to the emergence of the euro interbank market. As a result, higher short-term borrowing by these institutions may have triggered an increased level of systemic risk. In future research, we intend to further examine these underlying international differences. Regulators are currently developing a methodological framework within the context of Basel III that attempts to embody the main factors of systemic importance (see Walter, 2011). These factors are categorized as size, interconnectedness, substitutability, global activity and complexity, and will serve as a major reference to determine the amount of additional capital requirements and funding ratios for SIFIs. Our analysis provides formal empirical support to the Basel Committee’s proposal to penalize excessive exposures to liquidity risk by showing that short-term wholesale funding, a variable capturing interconnectedness, makes a significant contribution to systemic risk. Furthermore, since our findings suggest that some factors are much more important than others in determining systemic risk contributions, an optimal capital buffer structure on systemic banks could, in principle, be designed by suitably weighting the different driving factors as a function of their relative importance. This is an interesting topic for further research. Similarly, the evidence in this paper also offers empirical support to justify the theoretical models that argue that short-term wholesale funding can generate large systemic risk externalities (see, for instance, Perotti and Suárez, 2011). Given the relevance of liquidity strains as a contributing factor to systemic risk, the regulation of systemic risk could be strengthened by giving incentives to disclose contingent short-term liabilities, in particular those related to possible margin calls under credit default swap contracts and repo funding. In non-tabulated results, our study also points to the role of large trading books as a source of systemic risk for those banks that were recapitalized during the crisis. As a result, the 2010 revamp of the Basel II capital framework to cover market risk associated with banks’ trading book positions will not only decrease individual risk but will also help to mitigate systemic risk.