We investigate the interconnectedness and systemic risk of China's financial institutions by constructing dynamic tail-event driven networks (TENETs) at 1% risk level based on weekly returns of 24 ...publicly-listed financial institutions from 2008 to 2016. Total connectedness reaches a peak when the system exhibits stress, especially during the recent period from mid-2014 to end-2016. Large commercial banks and insurers usually exhibit systemic importance, but some small firms are systemically important due to their high level of incoming (outgoing) connectedness. Our results provide useful information to regulators when they assess systemic risk of financial institutions and formulate macroprudential supervision policy.
•Dynamic TENETs for 24 Chinese financial institutions are built for measuring interconnectedness and systemic risk.•Total connectedness of the TENET reaches a record high during the recent period from mid-2014 to end-2016.•Dynamic indicators (e.g., SRR and SRE indices) provide an early-warning function for identifying systemic risk.•One potential reason for the high level of systemic risk is the increasing size of China's shadow banking system.•Some small firms are systemically important due to their high level of incoming or outgoing connectedness.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NLZOH, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UL, UM, UPUK, ZRSKP
The regulation of large interconnected financial institutions has become a key policy issue. To improve financial stability, regulators have proposed limiting banks’ size and interconnectedness. I ...estimate a network-based model of the over-the-counter interbank lending market in the US and quantify the efficiency-stability implications of this policy. Trading efficiency decreases with limits on interconnectedness because the intermediation chains become longer. While restricting the interconnectedness of banks improves stability, the effect is non-monotonic. Stability also improves with higher liquidity requirements, when banks have access to liquidity during the crisis, and when failed banks’ depositors maintain confidence in the banking system.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UL, UM, UPUK, ZRSKP
•Expectation for public bailouts lowers daily funding costs for SIFIs.•The market valuation for the government support is time varying.•We estimate the time-invariant, structural subsidy value based ...on credit ratings.•It was already sizable, 60bp, as of the end-2007, before the crisis.•It increased to 80bp by the end-2009 for a large worldwide sample of banks.
Claimants to Systemically Important Financial Institutions (SIFIs) would receive transfers when governments are forced into bailouts. Ex ante, this bailout expectation lowers SIFIs’ daily funding costs. The funding cost advantage reflects both the structural level of the government support and the time-varying market valuation for such a support. Based on a large worldwide sample of banks, we estimate the value of the structural subsidy, by exploiting expectations of state support embedded in credit ratings and by applying the long-run average value of the rating bonus. The value of the structural subsidy was already sizable, 60basis points (bp), as of the end-2007, before the crisis. It increased to 80bp by the end-2009.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UL, UM, UPUK
The recent financial crisis proved that pre-existing arrangements for the governance of global markets were flawed. With reform underway in the USA, the EU and elsewhere, Emilios Avgouleas explores ...some of the questions associated with building an effective governance system and analyses the evolution of existing structures. By critiquing the soft law structures dominating international financial regulation and examining the roles of financial innovation and the neo-liberal policies in the expansion of global financial markets, he offers a new epistemological reading of the causes of the global financial crisis. Requisite reforms leave serious gaps in cross-border supervision, in the resolution of global financial institutions and in the monitoring of risk originating in the shadow banking sector. To close these gaps and safeguard the stability of the international financial system, an evolutionary governance system is proposed that will also enhance the welfare role of global financial markets.
The Basel Committee on Banking Supervision (BIS) has recently sanctioned expected shortfall (ES) as the market risk measure to be used for banking regulatory purposes, replacing the well-known value ...at risk (VaR). This change is motivated by the appealing theoretical properties of ES as a measure of risk and the poor properties of VaR. In particular, VaR fails to control for “tail risk.” In this transition, the major challenge faced by financial institutions is the unavailability of simple tools for evaluation of ES forecasts (i.e., backtesting ES). The main purpose of this paper is to propose such tools. Specifically, we propose backtests for ES based on cumulative violations, which are the natural analogue of the commonly used backtests for VaR. We establish the asymptotic properties of the tests, and investigate their finite sample performance through some Monte Carlo simulations. An empirical application to three major stock indexes shows that VaR is generally unresponsive to extreme events such as those experienced during the recent financial crisis, whereas ES provides a more accurate description of the risk involved.
This paper was accepted by Neng Wang, finance
.
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BFBNIB, CEKLJ, IZUM, KILJ, NMLJ, NUK, PILJ, PNG, SAZU, UL, UM, UPUK
O objetivo da pesquisa foi verificar a presença de estratégias empreendedoras e/ou de inovação nas dez maiores instituições financeiras brasileiras, em termos de ativos totais, de acordo com o Banco ...Central. Para tanto, criou-se um modelo de cinco critérios, baseados na literatura, que subsidiou a análise de conteúdo realizada por meio dos relatórios administrativos e notas explicativas das instituições selecionadas. Identificou-se que as organizações têm procurado, de maneira unânime, incorporar a tecnologia aos seus processos, produtos e/ou serviços. O compromisso com a transformação digital é um fator transversal aos critérios elencados, uma vez que denota a atuação em oportunidades empreendedoras, sustenta os frameworks empreendedor e inovador, também viabilizando novas ideias, processos, produtos e/ou serviços e a criação de valor a todos os stakeholders. Este artigo contribui ao campo devido à escassez de estudos teórico-empíricos com este tema, além da proposição de critérios para avaliação da presença dessas estratégias, pavimentando caminhos para a pesquisa empírica e argumentações conceituais. Também por sua utilização nesta mesma pesquisa, articulando as abordagens de modo a lançar luz sobre as práticas das maiores instituições financeiras brasileiras.
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CEKLJ, DOBA, IZUM, KILJ, NUK, PILJ, PNG, SAZU, UILJ, UKNU, UL, UM, UPUK
We analyze the reliability of voluntary disclosures of financial information, focusing on widely-employed publicly-available hedge fund databases. Tracking changes to statements of historical ...performance recorded between 2007 and 2011, we find that historical returns are routinely revised. These revisions are not merely random or corrections of earlier mistakes; they are partly forecastable by fund characteristics. Funds that revise their performance histories significantly and predictably underperform those that have never revised, suggesting that unreliable disclosures constitute a valuable source of information for investors. These results speak to current debates about mandatory disclosures by financial institutions to market regulators.
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BFBNIB, FZAB, GIS, IJS, INZLJ, KILJ, NLZOH, NMLJ, NUK, OILJ, PNG, SAZU, SBCE, SBMB, UL, UM, UPUK, ZRSKP
Monetary policy affects the real economy in part through its effects on financial institutions. High-frequency event studies show that the introduction of unconventional monetary policy in the winter ...of 2008–09 had a strong, beneficial impact on banks and, especially, on life insturance companies. I interpret the positive effects on life insurers as evidence that expansionary policy helped to recapitalize the sector by raising the value of legacy assets. Expansionary policy had small positive or neutral effects on banks and life insurers during the period 2010–13. The interaction of low nominal interest rates and administrative costs forced money market funds to waive fees, producing a possible incentive to reach for yield to reduce waivers. I show that money market funds with higher costs did reach for higher returns in 2009–11, but not thereafter. Some private defined-benefit pension funds increased their risk taking beginning in 2009, but again such behavior largely dissipated by 2012. In sum, unconventional monetary policy helped to stabilize some sectors and provoked modest additional risk taking in others. I do not find evidence that riskiness of the financial institutions studied fomented a trade-off between expansionary policy and financial stability at the end of 2013.
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BFBNIB, CEKLJ, INZLJ, IZUM, KILJ, NMLJ, NUK, ODKLJ, PILJ, PNG, SAZU, UL, UM, UPUK, ZRSKP
Access for All Helms, Brigit
2006, 01-20-2006, 20060101
eBook, Book
Open access
In the past ten years, the world of microfinance has changed dramatically. The field has moved rapidly from early innovations in providing loans to help poor entrepreneurs start businesses to a bold ...vision of creating entire financial systems that work for the poor. Microfinance has proven to be an effective tool for reducing poverty and helping poor people to improve their lives. And yet a diverse range of potential clients still lack access to an array of financial services not just credit for enterprise but also a safe place to save, the ability to transfer funds to family members, insurance against sickness or other household disasters, and other ways to mitigate risk in vulnerability. The challenge today is to engage more types of distribution systems, more technologies and more talent to create financial systems that work for the poor and boost their contribution to economic growth. This title explains what this new vision of microfinance means in practical, non-technical terms.
This paper investigates the influence of corporate governance on financial firms' performance during the 2007–2008 financial crisis. Using a unique dataset of 296 financial firms from 30 countries ...that were at the center of the crisis, we find that firms with more independent boards and higher institutional ownership experienced worse stock returns during the crisis period. Further exploration suggests that this is because (1) firms with higher institutional ownership took more risk prior to the crisis, which resulted in larger shareholder losses during the crisis period, and (2) firms with more independent boards raised more equity capital during the crisis, which led to a wealth transfer from existing shareholders to debtholders. Overall, our findings add to the literature by examining the corporate governance determinants of financial firms' performance during the 2007–2008 crisis.
► Firms with higher institutional ownership performed worse during the crisis. ► Institutional ownership was associated with greater risk-taking before the crisis. ► Firms with more independent boards performed worse during the crisis. ► Board independence was associated with more equity raisings during the crisis. ► Equity capital raisings helped firms survive the crisis.
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GEOZS, IJS, IMTLJ, KILJ, KISLJ, NUK, OILJ, PNG, SAZU, SBCE, SBJE, UL, UM, UPUK
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