Monday, December 17, 2012

Global Banking and Systemic Risk: Data and their story (Naked Capitalism)


Systemic Risks in Global Banking: What Available Data Can Tell Us and What More Data Are Needed?

By Eugenio Cerutti, Stijn Claessens, and Patrick McGuire. Cerutti is a Senior Economist at the Research Department of the IMF; Claessens is Assistant Director in the Research Department of the International Monetary Fund, Professor of International Finance Policy at the University of Amsterdam and CEPR Research Fellow; McGuire is senior economist in the Financial Institutions section, Bank for International Settlements. Originally published at VoxEU.
The starting point for systemic risk analysis for a single-country is typically the banking system1. A systemic risk analysis involves the use of disaggregated national bank data, including information on the composition of banks’ asset and liabilities, maturity and currency mismatches, and other balance sheet and income metrics. These national-based analyses then attempt to capture systemic risks stemming from common exposures, interbank linkages, funding concentrations, and other factors that may have a bearing on banks’ income, liquidity and capital adequacy conditions. Examples of such quantitative approaches are Boss et al (2006) for Austria and Alessandri et al (2009) for the UK.
Extending analysis to multi-country level – or not
Our approach, highlighted in Cerutti, Claessens and McGuire (2011) does not, however, directly extend to the multi-country level for a number of reasons:
  • Lack of institutional mechanisms which ensure coordination of national approaches
International financial linkages, by definition, involve more than one legal jurisdiction. For various reasons (legal framework, accountability to parliaments and taxpayers, etc.), policy makers tend to focus on national objectives. In addition, supervision of large, internationally-active financial institutions is often dispersed among agencies in many countries, with imperfect sharing of information and limited tools to coordinate remedial actions. Moreover, a global framework for the resolution of these institutions is lacking2. There is also no formal lender of last resort to address liquidity problems in foreign currencies3.

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