Identifying Vulnerabilities in Systemically Important Financial Institutions in a Macro-Financial Linkages Framework

Sun, Tao

doi:10.1016/j.jeca.2010.02.005

Cited by 10 publications

(15 citation statements)

References 27 publications

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“…Though large, the immediate bailout costs account only for a moderate share of the total cost of a systemic banking crisis. As shown in Dell Arriccia et al (2010) and Laeven and Valencia (2008, 2011, among others, the output losses of previous banking crises have averaged around 20-25% of GDP. In addition, the interplay of fiscally strained sovereigns and weak banking systems that characterize the ongoing sovereign debt crisis show the crucial role of the euro area banking sector for the stability of the entire European Monetary Union.…”

Section: Introductionmentioning

confidence: 92%

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Predicting distress in European banks

Betz

Opricǎ

Peltonen

et al. 2014

Journal of Banking & Finance

247

252

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In 2013 all ECB publications feature a motif taken from the €5 banknote.note: This Working Paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB. All rights reserved. ISSN 1725-2806 (online) EU Catalogue NoQB-AR-13-094-EN-N (online)Any reproduction, publication and reprint in the form of a different publication, whether printed or produced electronically, in whole or in part, is permitted only with the explicit written authorisation of the ECB or the authors. The refereeing process of this paper has been coordinated by a team composed of Gerhard Rünstler, Kalin Nikolov and Bernd Schwaab (all ECB).The paper is released in order to make the research of MaRs generally available, in preliminary form, to encourage comments and suggestions prior to final publication. The views expressed in the paper are the ones of the author(s) and do not necessarily reflect those of the ECB or of the ESCB. AcknowledgementsThe authors want to thank Riina Vesanen for excellent research assistance and colleagues at the ECB, Non-technical summaryThe global financial crisis has had a significant impact on the health of the European banking system and on the soundness of individual banks. Beyond the direct bailout costs and output losses, the interplay of fiscally strained sovereigns and weak banking systems that characterize the ongoing sovereign debt crisis show the importance of the euro area banking sector for the stability of the entire European Monetary Union. The motivation for an early-warning model for European banks is thus clear.To derive an early-warning model for European banks, this paper introduces a novel dataset of bank distress events. As bank defaults are rare in Europe, the data set complements bankruptcies, liquidations and defaults by also taking into account state interventions, and mergers in distress. State interventions comprise capital injections and asset reliefs (asset protection and guarantees). A distressed merger occurs if (i) a parent receives state aid within 12 months after the merger or (ii) if a merged entity has a coverage ratio (capital equity and loan reserves minus non-performing loans to total assets) smaller than 0 within 12 months before the merger.The outbreak of a financial crisis is known to be difficult to predict (e.g. Rose and Spiegel, 2011). Recently, the early-warning literature has therefore focused on detecting underlying vulnerabilities, and finding common patterns preceding financial crises (e.g. Reinhart and Rogoff, The models are estimated to derive probabilities of banks being in vulnerable states, but a policy maker needs to know when to act. Following Sarlin (2013), the signals of the model are evaluated taking into account the policymaker's preferences between type I and type II errors, the uneven frequency of tranquil and distress events, and the systemic relevance of each bank.This paper presents the first application of the evaluation framework t...

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Section: Introductionmentioning

confidence: 92%

“…Demirgüç-Kunt and Detragiache (2000), Davis and Karim (2008a,b) and Sun (2011) analyse banking crises with a global country coverage, whereas Hutchison (2003) and Mody and Sandri (2012) focus on European countries, where the latter study concerns the recent crisis.…”

Section: Focus On Easternmentioning

confidence: 99%

Predicting distress in European banks

Betz

Opricǎ

Peltonen

et al. 2014

Journal of Banking & Finance

247

252

View full text Add to dashboard Cite

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“…This is particularly important during crises that require new cognitive maps, as with globally systemic financial institutions. The IMF staff thus had room to engage with the new ideas on interconnectedness introduced by high-profile ideational entrepreneurs, not only in its academic-type research (see Cerutti et al 2010;Laeven, Ratnovksi, and Tong 2014;Sun 2011) but also in its more formal staff reports and position papers (see IMF 2010aIMF , 2012aIMF , 2013b. Indeed, the 2012 Enhancing Surveillance: Interconnectedness and Clusters report goes as far as to recognize that developing countries should reassert their influence over private finance, as critical finance scholars have called for (Gabor 2012;Gallagher 2011).…”

Section: The Imf's Views Of Interconnectednessmentioning

confidence: 99%

“…Indeed, contrary to common assumptions about the staff's expertise gaps on finance (see Chwieroth 2010;Moschella 2012), the IMF (2010a, 2012a) embraced a critical approach to interconnectedness that highlights its political, spatial, and institutional dimensions. In conceptualizing interconnectedness, the IMF crossed the boundary from (analytically) invisible financial institutions in its macroeconomic models to conceive of transnational banks as *University of the West of England complex businesses whose market-based business models render them "superspreaders" of global systemic risk (see Haldane 2009; also Howarth 2013) through tax, regulatory, and yield arbitrage (IMF 2010a(IMF , 2012a(IMF , 2013aLaeven, Ratnovski, and Tong 2014;Sun 2011). This article is animated by a simple question: How did the shift to critical interconnectedness change the ideas about transnational banks espoused by the IMF in developing/emerging countries? This is an important, yet unexplored, question.…”

Section: Introductionmentioning

confidence: 99%

The IMF's Rethink of Global Banks: Critical in Theory, Orthodox in Practice

Gabor

2014

Governance

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The International Monetary Fund's (IMF) new financial interconnectedness agenda, developed in response to postcrisis calls from G20 to better understand systemic financial institutions, deploys a critical approach that stresses the spatial, political, and institutional dimensions of cross‐border financial networks. It portrays global banks as key nodes in those networks, “super‐spreaders” of systemic risk through complex business models that involve yield search, regulatory and tax arbitrage. Yet this critical view does not translate into its policy advice at country level. In regular surveillance of developing countries, the IMF remains committed to a benign view of transnational banking, even when confronted with growing cross‐border fragilities. During crises of cross‐border banking, the IMF tailors its conditionality to minimize domestic regulatory challenges to cross‐border banking models and to propose crisis measures that create new profit opportunities for transnational banks.

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“…krizi esnasında birçok finansal ve ekonomik değişken yanında kredi ödememe frekanslarının küresel yayılma gösteren likidite darlığı ve krizlere pozitif tepki vererek yükseldiği gözlenmiştir (Sun, 2010).…”

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Makro Fi̇nansal Bağlantilar Ve Kredi̇ Portföyleri̇ni̇n Kali̇tesi̇ne Etki̇leri̇

2016

Yönetim Ve Ekonomi Araştırmaları Dergisi

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Identifying Vulnerabilities in Systemically Important Financial Institutions in a Macro-Financial Linkages Framework

Cited by 10 publications

References 27 publications

Predicting distress in European banks

Predicting distress in European banks

The IMF's Rethink of Global Banks: Critical in Theory, Orthodox in Practice

Makro Fi̇nansal Bağlantilar Ve Kredi̇ Portföyleri̇ni̇n Kali̇tesi̇ne Etki̇leri̇

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