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. This version: April 24, 2012 AbstractWe 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.

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Several studies have characterized the relation between discretionary accruals and earnings before-taxes to test for the existence of earnings smoothing behaviors. In this paper, we argue that the characteristic response of accruals to earnings is not linear, as the literature has shown. Instead, it is likely to be driven by non-linear patterns since both the incentives to manipulate earnings and the practical way to do so depend, in part, on the relative size of earnings. Using a sample of 9,442 US banks in the period 1999-2008, this paper shows that bank managers tend to use provisions as a smoothing devise when earnings are substantial ("cookie-jar" strategies), engage in earningsdecreasing strategies when losses are relatively large ("big-bath" accounting) and, most of the time, use provisions as an earnings-increasing tool. Hence, it is shown that nonlinear specifications are more informative with regard to the different strategies employed to manipulate earnings. Abstract Several studies have characterized the relation between discretionary accruals and earnings before-taxes to test for the existence of earnings smoothing behaviors. In this paper, we argue that the characteristic response of accruals to earnings is not linear, as the literature has shown. Instead, it is likely to be driven by non-linear patterns since both the incentives to manipulate earnings and the practical way to do so depend, in part, on the relative size of earnings. Using a sample of 9,442 US banks in the period 1999-2008, this paper shows that bank managers tend to use provisions as a smoothing devise when earnings are substantial ("cookie-jar" strategies), engage in earningsdecreasing strategies when losses are relatively large ("big-bath" accounting) and, most of the time, use provisions as an earnings-increasing tool. Hence, it is shown that nonlinear specifications are more informative with regard to the different strategies employed to manipulate earnings. Marina Balboa

In this paper we propose a family of least-squares based testing procedures that look to detect general forms of fractional integration at the long-run and/or the cyclical component of a time series, and which are asymptotically equivalent to Lagrange Multiplier tests. Our setting extends Robinson's (1994) results to allow for short memory in a regression framework and generalises the procedures in Agiakloglou and Newbold (1994), Tanaka (1999) and Breitung and Hassler (2002) by allowing for single or multiple fractional unit roots at any frequency in [0, π]. Our testing procedure can be easily implemented in practical settings and is flexible enough to account for a broad family of long-and shortmemory specifications, including ARMA and/or GARCH-type dynamics among others. Furthermore, these tests have power against different types of alternative hypotheses and enable inference to be conducted under critical values drawn from a standard Chi-squared distribution, irrespective of the long-memory parameters.

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