Systemic risk measures and regulatory challenges

Ellis, Scott J.; Sharma, Satish; Brzeszczyński, Janusz

doi:10.1016/j.jfs.2021.100960

Cited by 29 publications

(15 citation statements)

References 175 publications

(173 reference statements)

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“…This relationship indicate that banks' profitability and performance is contrarywise affected by non-performing loans that could expose them to large amounts of volatility and the global financial crisis. These results suggested that banks need to strengthen their CRM policies not only to generate income but also to maintain a portfolio of qualitative assets (Ellis, Sharma, & Brzeszczyński, 2022).…”

Section: Base Model Resultsmentioning

confidence: 97%

Credit Risk Management Can Gear Up Bank Performance – Moderating Effect of Interest Rate in Developed Countries

Saleem

Masood

2023

iRASD J. Eco.

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This research explores the role of interest rate as a moderator in credit risk management, influencing the performance of banking industry in selected developed countries using a two-step GMM model. The annual data of the top 10 banks of the selected 10 developed countries ranging from 2001 to 2020 was used. The developed countries or G-10 are Belgium, Canada, France, Germany, Italy, Japan, Sweden, Switzerland, the United Kingdom, and the United States, which are the originators of the Basel Accords. Bank performance, proxied by ROA, ROE, ATO, and NPM, is dependent. Interest rate is a moderator, independent and indexed, developed after netting off lending interest rate (LIR), interest rate spread (IRS) & net interest margin (NIM). The credit risk management index (CRM index) was derived after netting off the effects of extra ordinary financing of net loans and leases, negativity of nonperforming loans, and secured cushioning of risk-weighted assets. The results confirmed that CRM improves the growth of banking, especially in case of ROA, ROE, and NPM, improves more by the induction of the moderator of the interest rate index and enhances more with the induction of the interaction. This research guides for rearranging the determinants of CRM, identifying loopholes of CRM, fixing interest rates, and looking after natural fixation of interest rate. CRM policies should be stringent, security analysis must be centralized, offered interest rate must be natural and savings must be used in a productive usage rather than multiple financing at lower interest rates. The research contributed two indexes, the CRM index and the interest rate index (IR index), which were developed by NPLs, NLLs, RWAs and LIR, IRS, and NIM, respectively. The results highlighted that loanable fund theory is starving without remedial measures of CRM for leakage of “credit”, drainage of “capital” or seepage of “money”. The researcher selected ten developed countries with the 10 highest scoring banks in a period of 2001-2020 and used a two-stage GMM technique.

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Section: Base Model Resultsmentioning

confidence: 97%

Credit Risk Management Can Gear Up Bank Performance – Moderating Effect of Interest Rate in Developed Countries

Saleem

Masood

2023

iRASD J. Eco.

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“…Fourth, formal and informal instruments were mobilized during both systemic crises. Regarding the 2008 global financial crisis (Claessens & Kodres, 2014), micro‐prudential regulations were adopted to strengthen the capacity of individual financial institutions (Ellis et al, 2022) and to ensure a safe and orderly resolution in case of bankruptcy. Regional measures were taken to integrate systemic assessment of risks in the banking sector.…”

Section: The Importance Of Governance Designmentioning

confidence: 99%

Understanding and governing global systemic crises in the 21st century: A complexity perspective

et al. 2023

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Contemporary globalization has fostered human development but growing interconnectivity between societies has increased systemic risks (Goldin & Mariathasan, 2014;Goldin & Vogel, 2010). Systemic risks are risks associated with large-scale failures or changes of a system (Helbing, 2013). Disruptions originating in one country can quickly spread beyond national borders and affect large parts of the human population. Addressing such threats is considered a global public good, i.e., goods with benefits that extend to all countries (Kaul et al., 1999). In the study of risks with large-scale impacts, research has often focused on wars, natural disasters, and existential risks (Ord, 2020). However, crises affecting human societies are also related to economic and social issues, or the cooccurrence of social and ecological phenomena (Folke et al., 2021). In the early 21st century, the world has experienced several systemic events with global repercussions, including jihadist terrorism and the war on terror (2001), the global financial and economic crisis ( 2008), the COVID-19 pandemic (2020), and the current broader impact of the Russian aggression against Ukraine on energy, food, and security (2022).These events have provided an empirical basis to study systemic crises. This article aims at providing a broader understanding of the nature, causes, mechanisms, and impact of global systemic crises and their implications for global policymaking and governance. Such understanding is essential for the provision of global public goods to prevent, react to, and recover from shocks. The article

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“…The “too-big-to-fail” [ 10 , 11 ] and “too-interconnected-to-fail” [ 12 , 13 ] views hold that the failure of financial institutions that are very large or are closely interconnected with others could pose a significant threat to financial stability. Those studies emphasize the importance of strengthening the soundness of individual institutions that are systemically important to ensure the financial system’s stability [ 4 , 14 ]. However, in formulating systemic risk prevention policies, less attention has been paid to the network structure that is highly relevant to systemic risk contagion [ 15 – 19 ].…”

Section: Related Literaturementioning

confidence: 99%

“…In order to limit systemic risk contagion in financial networks, regulators take the “too-big-to-fail” and “too-interconnected-to-fail” problems seriously and introduce many policies, such as the capital/leverage surcharges for systemically important banks (SIBs) proposed in Basel III. The identification of SIBs focuses on the “aggregate interconnectedness” of individual banks, and existing regulatory policies aim to enhance the stability of individual SIBs [ 4 ]. Nevertheless, the group interlinkages among SIBs described by their connection tendency and the resulting cluster structure of the interbank network are ignored.…”

Section: Introductionmentioning

confidence: 99%

Systemic risk prevention policies targeting systemically important banks: Does clustering pattern matter?

Zhu

Deng

et al. 2023

PLoS ONE

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It is well known that strengthening the soundness of individual banks that are too large or too interconnected is essential for maintaining financial stability. The clustering among homogeneous banks may also cause financial fragility but has received less attention. This paper discusses the policy improvement for preventing systemic risk from the perspective of the clustering pattern of systemically important banks (SIBs) based on a network optimization model. The results show that the clustering pattern of SIBs is closely related to systemic risk contagion. Remarkably, networks with fewer connections among SIBs exhibit lower systemic risk than those featuring apparent clustering of SIBs. The potential mechanism is that the systemic vulnerability of small and medium-sized banks is greatly reduced in the disassortative networks. The proposed tools based on this—inter-SIBs exposure limits and pairwise capital requirements—can guide network optimization and significantly reduce systemic risk. Furthermore, combining existing capital surcharges for SIBs (focusing on the stability of individual SIBs) and proposed network-based tools (focusing on the cluster structure of the network) will be an effective way to enhance financial stability over existing policies.

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Systemic risk measures and regulatory challenges

Cited by 29 publications

References 175 publications

Credit Risk Management Can Gear Up Bank Performance – Moderating Effect of Interest Rate in Developed Countries

Credit Risk Management Can Gear Up Bank Performance – Moderating Effect of Interest Rate in Developed Countries

Understanding and governing global systemic crises in the 21st century: A complexity perspective

Systemic risk prevention policies targeting systemically important banks: Does clustering pattern matter?

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