What’s the contingency? A proposal for bank contingent capital triggered by systemic risk

The paper analyzes central banks macroprudencial policy and its instruments. The issues of their classification, option, design and adjustment are connected with financial stability of overall financial system and its specific institutions. The macroprudencial instruments effectiveness is evaluated from the two points: how they mitigate temporal and intersectoral systemic risk development (market, credit, and operational). The future macroprudentional policy studies directions are noted to identify the instruments, which can be used to limit the financial systemdevelopment procyclicality, mitigate the credit and financial cycles volatility.

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Risk Factors of Collateralized Loan Obligations and Corporate Bonds

Zeitschrift für Bankrecht und Bankwirtschaft ◽

10.15375/zbb-2020-0604 ◽

2020 ◽

Vol 32 (6) ◽

pp. 347-355

Author(s):

Mark Wahrenburg ◽

Andreas Barth ◽

Mohammad Izadi ◽

Anas Rahhal

Keyword(s):

Risk Factors ◽

Risk Factor ◽

Asset Pricing ◽

Systemic Risk ◽

Corporate Bonds ◽

Risk Exposure ◽

Expected Returns ◽

Yield Spreads ◽

Pricing Factors ◽

Return Difference

AbstractStructured products like collateralized loan obligations (CLOs) tend to offer significantly higher yield spreads than corporate bonds (CBs) with the same rating. At the same time, empirical evidence does not indicate that this higher yield is reduced by higher default losses of CLOs. The evidence thus suggests that CLOs offer higher expected returns compared to CB with similar credit risk. This study aims to analyze whether this return difference is captured by asset pricing factors. We show that market risk is the predominant risk factor for both CBs and CLOs. CLO investors, however, additionally demand a premium for their risk exposure towards systemic risk. This premium is inversely related to the rating class of the CLO.

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