Addressing systemic risk using contingent convertible debt – A network analysis

Operational Research and Artificial Intelligence Methods in Banking

“…Thus, network models ( Bachman, 1969 ) are a popular OR approach in banking risk management. Network models capture the relationships between objects based on their topological structure, and they are frequently used to analyze systematic risk in financial markets, being employed to demonstrate the risks emerging from interconnections in the banking system ( Pichler et al, 2020 ;Gupta et al, 2020 ). Some studies have employed Bayesian networks to analyze liquidity and operational risks ( Sanford & Moosa, 2012 ;Tavana et al, 2018 ), and Bayesian networks have also been used to illustrate the probabilistic relationships between banks ( Sanford & Moosa, 2015 ).…”

“…They study and highlight the interconnectedness in the banking system, which plays a crucial role in the threat of contagions bank failure. Specifically, they focus on issues such as (i) optimizing banking networks to minimize the systemic risk of bank lending ( Torri et al, 2018 ;Sun, 2018 ;Gupta et al, 2020 ), (ii) asset allocation ( Pichler et al, 2020 ), (iii) market liquidity (Liu, & Yao, 2016), (iv) policy reforms ( Poledna et al, 2014 ), and (v) the prediction of systemic crises using advanced data analytics approaches relying on recently developed deep learning systems ( Lepetyuk et al, 2020 ;Tölö, 2020 ).…”

Determinants of CoCo issuance: liquidity and risk incentives

“…He also shows that the primary benefit occurs when the issuers rely on these triggers over accounting-based indicator triggers, and also suggests that regulators should not interfere in the conversion decision. Gupta et al (2021) show the ability of a conversion-to-equity CoCo to reduce the probability of bank failure, as well as mitigate systemic risk. They also show that the conversion-to-equity CoCo with a dual trigger is more effective than a CoCo with a single trigger to avoid bankruptcy.…”

Shared Exposures or Management Fashions? Drivers of Cross-Industry Convergence of Textual Risk Disclosures

“…Such data have been widely used as a data source in management (e.g., Guo et al, 2017;Dutt and Joseph, 2019), accounting (e.g., Cazier et al, 2021), risk management (e.g., Bao and Datta, 2014), bankruptcy prediction (Mai et al, 2019), and -importantly -systemic risk measurement (Bushman et al, 2017). In contrast with previous literature, we focus on convergence in attention across industries, which contrasts with a growing literature using financial reports to extract information about individual firms or risks arising within a single industry (e.g., Bushman et al, 2017;Mai et al, 2019;Gupta et al, 2021).…”