Crossborder financial contagion to Germany: How important are OTC dealers?

Podlich, Natalia; Wedow, Michael

doi:10.1016/j.irfa.2013.07.008

Cited by 8 publications

(4 citation statements)

References 20 publications

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“…Similarly to Podlich and Wedow (2014), EDF changes are expressed as a weighted average for each country-sector pair and computed using: i) each company's asset value, which is estimated by Moody's to reflect the market's view of the value of a company in light of its equity value, equity volatility and liability structure; ii) the EDF1 of each company, which is Moody's calculated expected default frequency value within a year (EDF 9 model), expressed in percentages. In this framework, a default event occurs in case of failure of a principal or interest payment or a government bailout.…”

Section: Datamentioning

confidence: 99%

One Scheme Fits All: A Central Fiscal Capacity for the EMU Targeting Eurozone, National and Regional Shocks

2022

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Section: Datamentioning

confidence: 99%

One Scheme Fits All: A Central Fiscal Capacity for the EMU Targeting Eurozone, National and Regional Shocks

2022

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“…Benos, Wetherilt, and Zikes (2013), Loon and Zhong (2016), Fulop and Lescourret (2016), Morrison, Vasios, Wilson, and Zikes (2017), Riggs, Onur, Reiffen, and Zhu (2018) investigate different aspects of CDS markets, such as centralised clearing, transparency, contract standardization, and the transmission of counterparty risk. Podlich and Wedow (2014) asses contagion for dealer and non-dealers using CDS prices. Benos, Payne, and Vasios (2019) and Cenedese, Ranaldo, and Vasios (Forthcoming) look into the market liquidity and the pricing of interest rate swaps (IRS) in the new regulatory environment.…”

Section: Introductionmentioning

confidence: 99%

OTC Microstructure in a period of stress: A Multi-layered network approach

Joseph

Vasios²

2022

Journal of Banking & Finance

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Using unique data at transaction and counterparty identity level, we study the microstructure of the Swiss franc FX over-the-counter (OTC) derivatives market during a time of stress that was triggered by the decision of the Swiss National Bank (SNB) to remove the Swiss franc-euro exchange rate floor on 15 January 2015. Building on new methodology based on the topology of the trading network we segment the market into a multi-layered structure. We observe that the SNB announcement had a clear and differentiate impact on the market from this perspective. Clients in a more central position in the network topology were able to enter the market sooner than peripheral counterparties, while the inter-dealer core of the market was largely inactive. Using outstanding positions to proxy demand we observe that clients in greater need of trading were offered unfavourable prices if they found liquidity. Overall, our results point to a shortage of liquidity in the phase of market adjustment and highlight the heterogeneous reactions of different market segments during that time.

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“…On the empirical side, there is a large literature which focuses on measuring credit risk interconnectedness from market data (Kritzman, Yuanzhen, Page, andRigobon (2011), Zhang et al (2012), Barigozzi and Brownlees (2013), Podlich and Wedow (2014) and Betz et al 1 (2014)). However, it seems unclear why high frequency market data should reflect bank fundamentals (actual balance sheet information), that -at best -are only available annually.…”

Section: Introductionmentioning

confidence: 99%

Credit risk interconnectedness: What does the market really know?

Abbassi

Brownlees

Hans

et al. 2017

Journal of Financial Stability

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Reproduction permitted only if source is stated. ISBN Non-technical summary Research questionThe identification and quantification of the systemic component of financial risk require an in-depth understanding of the channels through which shocks can spread and amplify, thereby jeopardizing the stability of a financial system. Our understanding of these links as a whole is, however, hampered by the absent comprehension of the key determinants of financial institutions' interconnections. This has been due to the lack of comprehensive datasets on a from-whom-to-whom basis that are sufficient for analyses of this kind. Therefore, a number of recent studies have suggested network estimation techniques based on market information to overcome this hurdle. In this paper, we examine the relationship between market-based measures of credit risk interconnectedness and actual common exposures of banks through their funding and securities holdings. ContributionWe use CDS prices to measure market-implied interconnectedness between banks employing a correlation-based approach and use a unique proprietary dataset for the period 2006-2013 to evaluate how much market information-based measures capture actual balance sheet linkages and risks associated with banks' funding, security investment, and credit provision behavior. ResultsTwo main results emerge from our analysis. First, we find that our market-based interconnectedness measure strongly reflects the information on banks' exposure to the wholesale funding market and assets associated with securities investments and credit supply. Second, we show that the relation between our market-based interconnectedness measure and the balance sheet positions exhibits asymmetries both over time and cross-sectionally. For instance, we find that interbank lending is a relevant driver of our measure during crisis times as other sources of financing become hard to obtain. And, bank pairs with higher exposures to the troubled security classes show up as more interconnected. On the contrary, commonality in securities investments related to crisis-unaffected security classes does not induce higher dependency. These results show that market information-based measures of interdependence can serve well as a risk monitoring tool in the absence of disaggregated highfrequency bank fundamental data. Abstract We analyze the relation between market-based credit risk interconnectedness among banks during the crisis and the associated balance sheet linkages via funding and securities holdings. For identification, we use a proprietary dataset that has the funding positions of banks at the bank-to-bank level for 2006-13 in conjunction with investments of banks at the security level and the credit register from Germany. We find asymmetries both cross-sectionally and over time: when banks face di culties to raise funding, the interbank lending a↵ects market-based bank interconnectedness. Moreover, banks with investments in securities related to troubled classes have a higher credit risk interconnectedness. ...

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Crossborder financial contagion to Germany: How important are OTC dealers?

Cited by 8 publications

References 20 publications

One Scheme Fits All: A Central Fiscal Capacity for the EMU Targeting Eurozone, National and Regional Shocks

One Scheme Fits All: A Central Fiscal Capacity for the EMU Targeting Eurozone, National and Regional Shocks

OTC Microstructure in a period of stress: A Multi-layered network approach

Credit risk interconnectedness: What does the market really know?

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