Interest in examining the financial linkages of economies has increased in the wake of the 2008/9 global financial crisis. Applying the concepts of beta-and sigma-convergence of stock market returns, we assess changes over time in the degree of stock market integration of Russia and China with each other, as well as with respect to the United States, the Euro Area, and Japan. Our analysis is based on national and sectoral data spanning the period September 1995 to October 2010. Overall, we find evidence for gradually increasing convergence of stock market returns after the 1997 Asian financial crisis and the 1998 Russian financial crisis. Following a major disruption caused by the 2008/9 global financial crisis, the process of stock market return convergence resumes between Russia and China, as well as with world markets. Notably, the episode of sigma-divergence from the 2008/9 crisis is stronger for China than for Russia. We also find that the process of stock market return convergence and the impact of the recent crisis have not been uniform at the sectoral level, suggesting the potential for diversification of risk across sectors.
The risks associated with credit and liquidity positions and asset and liability maturity mismatches are mitigated by applying capital ratio, leverage ratio, liquidity coverage ratio and net stable funding ratio requirements to banks. As a macroprudential authority, the Czech National Bank moreover responds to changes in systemic risk by changing the capital buffer requirements. This can induce a reaction by banks leading to a change in their balance-sheet structure, which, in turn, will affect their degree of fulfilment of all the requirements. This article analyses the relationship between the regulatory capital and liquidity instruments by studying banks' response to an increase in the countercyclical capital buffer rate and a subsequent economic downturn. The results reveal that it is vital for macroprudential authorities to look at the initial levels of the other required ratios before starting to change the countercyclical capital buffer rate if they are to maximise the effectiveness of the latter.
We present a macro stress-testing model for banks' market and funding liquidity risks with a survival period of one year. The model follows the main principles of the Basel standards LCR and NSFR. Besides, the model takes into account the impact of both bank-specific and market-wide scenarios and includes second-round effects of shocks due to banks' feedback reactions. The presented methodology is then applied to a sample of Czech banks. This allows us to monitor the sensitivity of their liquidity position to the combination of shocks under consideration.
In response to the global financial crisis (GFC) that started in 2007, both international and national authorities initiated number of regulatory changes. These were addressing primarily the risks generated in the banking sectors and to some extent at the insurance industry and capital market. In particular, the Basel Committee on Banking Supervision (BCBS) introduced number of reforms to the international framework for measuring and mitigating solvency, liquidity, and market risks. Besides regulatory changes for functioning of individual institutions, macroprudential policies were instituted to address systemic risks (for details see Frait et. al (2016). The GCF has had dire consequences for macroeconomic dynamics and stability of global economy, the advanced economies in particular. Weak demand, partially associated with high indebtedness in number of economies, contributed to strong disinflationary pressures. Central banks have responded by exceptionally accommodative policies that created environment of exceptionally low interest rates (Section 1.3). Despite it, economic activity in most advanced economies remained subdued and disinflation pressures persisted. This chapter deals with the potential of adopted policies to create potential sources of systemic risk. It also discusses the risk of Japanisation of European economy and its financial sector (Section 1.2).
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