Systemic RIsk in Global Banking
The global crisis has shown how a shock that originates in one country or asset class can quickly propagate to other markets and across borders. As in the closed-economy case, the nature of the balance sheet linkages between financial institutions and markets will affect the size of spillovers and their direction of propagation. At the global level, however, financial linkages and channels of propagation are more complex. Many of the data needed for identifying and tracking international linkages, even at a rudimentary level, are not (yet) available, and the institutional infrastructure for global systemic risk management is inadequate or simply non-existent. This paper highlights some of the unique challenges to global systemic risk measurement with an eye toward identifying those high-priority areas where enhancements to data are most needed.
The starting point of systemic risk analysis in a single country is typically the banking system.2 This is due to banks’ significant role in financial intermediation and maturity transformation, and their highly leveraged operations. The approach often taken at central banks and supervisory agencies is to identify systemic risks using disaggregated data, including information on the composition of banks’ assets and liabilities, maturity and currency mismatches, and other balance sheet and income metrics. These analyses attempt to capture systemic risks stemming from common exposures, interbank linkages, funding concentrations, and other factors that may have a bearing on income, liquidity and capital adequacy conditions.3 This approach does not, however, directly extend to the multi-country level. At least three additional challenges arise:
Full paper here.