Distress dependence and financial stability

The proper estimation of distress dependence amongst the banks in a system is key to monitoring the stability of the banking system. Financial supervisors recognize the importance of assessing not only the risk of distress i.e. large losses and possible defaults by a specific bank but also the impac...

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Autores principales:	Segoviano, Miguel A., Goodhart, Charles A. E.
Formato:	Artículo
Lenguaje:	eng
Publicado:	Banco Central de Chile 2019
Materias:	ESTABILIDAD ECONÓMICA BANCOS
Acceso en línea:	https://hdl.handle.net/20.500.12580/3874
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spelling	oai-20.500.12580-38742021-04-24T11:15:06Z Distress dependence and financial stability Segoviano, Miguel A. Goodhart, Charles A. E. ESTABILIDAD ECONÓMICA BANCOS The proper estimation of distress dependence amongst the banks in a system is key to monitoring the stability of the banking system. Financial supervisors recognize the importance of assessing not only the risk of distress i.e. large losses and possible defaults by a specific bank but also the impact that such an event would have on other banks in the system. Clearly an event involving simultaneous large losses in several banks would affect the stability of the whole system and thus represents a major concern for supervisors. Banks’ distress dependence is based on the fact that banks are usually linked either directly through the inter-bank deposit market and participation in syndicated loans or indirectly through lending to the same sectors and proprietary trades. Their distress dependence varies throughout the economic cycle and tends to rise in times of distress since the fortunes of banks decline concurrently through either direct links that is contagion after idiosyncratic shocks affecting inter-bank deposit markets and participation in syndicated loans or indirect links that is negative systemic shocks affecting lending to common sectors and proprietary trades. 2019-11-01T00:04:58Z 2019-11-01T00:04:58Z 2010 Artículo 978-956-7421-34-3 https://hdl.handle.net/20.500.12580/3874 eng Series on Central Banking Analysis and Economic Policies no. 15 Attribution-NonCommercial-NoDerivs 3.0 Chile http://creativecommons.org/licenses/by-nc-nd/3.0/cl/ .pdf Sección o Parte de un Documento p. 327-370 application/pdf Banco Central de Chile
institution	Banco Central
collection	Banco Central
language	eng
topic	ESTABILIDAD ECONÓMICA BANCOS
spellingShingle	ESTABILIDAD ECONÓMICA BANCOS Segoviano, Miguel A. Goodhart, Charles A. E. Distress dependence and financial stability
description	The proper estimation of distress dependence amongst the banks in a system is key to monitoring the stability of the banking system. Financial supervisors recognize the importance of assessing not only the risk of distress i.e. large losses and possible defaults by a specific bank but also the impact that such an event would have on other banks in the system. Clearly an event involving simultaneous large losses in several banks would affect the stability of the whole system and thus represents a major concern for supervisors. Banks’ distress dependence is based on the fact that banks are usually linked either directly through the inter-bank deposit market and participation in syndicated loans or indirectly through lending to the same sectors and proprietary trades. Their distress dependence varies throughout the economic cycle and tends to rise in times of distress since the fortunes of banks decline concurrently through either direct links that is contagion after idiosyncratic shocks affecting inter-bank deposit markets and participation in syndicated loans or indirect links that is negative systemic shocks affecting lending to common sectors and proprietary trades.
format	Artículo
author	Segoviano, Miguel A. Goodhart, Charles A. E.
author_facet	Segoviano, Miguel A. Goodhart, Charles A. E.
author_sort	Segoviano, Miguel A.
title	Distress dependence and financial stability
title_short	Distress dependence and financial stability
title_full	Distress dependence and financial stability
title_fullStr	Distress dependence and financial stability
title_full_unstemmed	Distress dependence and financial stability
title_sort	distress dependence and financial stability
publisher	Banco Central de Chile
publishDate	2019
url	https://hdl.handle.net/20.500.12580/3874
work_keys_str_mv	AT segovianomiguela distressdependenceandfinancialstability AT goodhartcharlesae distressdependenceandfinancialstability
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Distress dependence and financial stability

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