Systemic Risk, Financial Crisis, and Credit Risk Insurance

2013 ◽  
Vol 48 (3) ◽  
pp. 417-442 ◽  
Author(s):  
Fang Chen ◽  
Xuanjuan Chen ◽  
Zhenzhen Sun ◽  
Tong Yu ◽  
Ming Zhong
Keyword(s):  
Financial Crisis ◽  
Credit Risk ◽  
Systemic Risk ◽  
Risk Insurance

scholarly journals Measuring the systemic risk in the South African banking sector

2017 ◽  
Vol 20 (1) ◽  
Author(s):  
Gregory M. Foggitt ◽  
Andre Heymans ◽  
Gary W. Van Vuuren ◽  
Anmar Pretorius
Keyword(s):  
Financial Crisis ◽  
South African ◽  
Systemic Risk ◽  
Banking Sector ◽  
Risk Index ◽  
Financial Sector ◽  
Ethical Behaviour ◽  
The South ◽  
Case Scenario ◽  
Worst Case

Background: In the aftermath of the sub-prime crisis, systemic risk has become a greater priority for regulators, with the National Treasury (2011) stating that regulators should proactively monitor changes in systemic risk.Aim: The aim is to quantify systemic risk as the capital shortfall an institution is likely to experience, conditional to the entire financial sector being undercapitalised.Setting: We measure the systemic risk index (SRISK) of the South African (SA) banking sector between 2001 and 2013.Methods: Systemic risk is measured with the SRISK.Results: Although the results indicated only moderate systemic risk in the SA financial sector over this period, there were significant spikes in the levels of systemic risk during periods of financial turmoil in other countries. Especially the stock market crash in 2002 and the subprime crisis in 2008. Based on our results, the largest contributor to systemic risk during quiet periods was Investec, the bank in our sample which had the lowest market capitalisation. However, during periods of financial turmoil, the contributions of other larger banks increased markedly.Conclusion: The implication of these spikes is that systemic risk levels may also be highly dependent on external economic factors, in addition to internal banking characteristics. The results indicate that the economic fundamentals of SA itself seem to have little effect on the amount of systemic risk present in the financial sector. A more significant relationship seems to exist with the stability of the financial sectors in foreign countries. The implication therefore is that complying with individual banking regulations, such as Basel, and corporate governance regulations promoting ethical behaviour, such as King III, may not be adequate. It is therefore proposed that banks should always have sufficient capital reserves in order to mitigate the effects of a financial crisis in a foreign country. The use of worst-case scenario analyses (such as those in this study) could aid in determining exactly how much capital banks could need in order to be considered sufficiently capitalised during a financial crisis, and therefore safe from systemic risk.

Systemic Risk in Banking after the Great Financial Crisis

2014 ◽  
Author(s):  
Philipp Hartmann ◽  
Olivier de Bandt ◽  
José Luis Peydró
Keyword(s):  
Financial Crisis ◽  
Systemic Risk

After 2008 Global Financial Crisis, Short-Term Dynamics of CDS, Bond, and Stock Markets in South Eastern European Economies

2013 ◽  
pp. 181-194
Author(s):  
Ali Sabri Taylan ◽  
Hüseyin Tatlidil
Keyword(s):  
Financial Crisis ◽  
Credit Risk ◽  
Stock Markets ◽  
European Countries ◽  
Stock Index ◽  
Bond Markets ◽  
Eastern European ◽  
South Eastern ◽  
Eastern European Countries

Credit risk pricing is perhaps an understudied topic in comparisons to its profound impact on the world’s financial markets and economies. This study uses established price discovery techniques to develop a method of price discovery for credit risk in three financial markets: equity, debt, and credit derivative. This chapter is motivated by the development of credit-related instruments and signals of stock price movements of South-Eastern European countries—Bulgaria, Croatia, Greece, Hungary, Romania, Slovenia, Slovakia, and Turkey—during the recent financial crisis. In this study, the authors evaluate the dynamics of fiscal risk or country risk measured by sovereign Credit Default Swap (CDS), liquidity risk measured bond markets, and stock markets for the monthly based September 2008 – February 2011 period. The study examines monthly data observing 38 months and 8 countries. A panel vector autoregression model is proposed for changes in Long-Term Interest Rate (LTIR), changes in CDS spreads (CDS), and changes in stock index. In conclusion, CDS markets and stock markets are more significant than bond markets in explaining the post-crisis relationship among developing South-Eastern European countries. The analysis displays that long-term monetary policy did not affect CDS premium and stock index level. A strong relationship is found between the CDS spread and stock market. During financial crisis and after the crisis, the correlations among CDS, stock, and bond markets are collapsed by panicked investors’ rapid movement and wild speculators. This risk perception can explain the difference between the finance theory and practices in the market.

scholarly journals The impacts of financial crisis on sovereign credit risk analysis in Asia and Europe

2015 ◽  
Vol 02 (03) ◽  
pp. 1550026
Author(s):  
Min Zhang ◽  
Adam W. Kolkiewicz ◽  
Tony S. Wirjanto ◽  
Xindan Li
Keyword(s):  
Financial Crisis ◽  
Credit Risk ◽  
Risk Premium ◽  
Global Financial Crisis ◽  
European Countries ◽  
Foreign Reserve ◽  
Sovereign Credit ◽  
Sovereign Credit Risk ◽  
Credit Risk Analysis ◽  
Credit Event

In this paper, we investigate the nature of sovereign credit risk for selected Asian and European countries based on a set of sovereign CDS data over an eight-year period that includes the episode of the 2007–2008 global financial crisis. Our results indicate that there exists strong commonality in sovereign credit risk among the countries studied in this paper following the crisis. In addition, our results also show that commonality is importantly associated with both local and global financial and economic variables. However, there are markedly different impacts of the sovereign of credit risk in Asian and European countries. Specifically, we find that foreign reserve, global stock market, and volatility risk premium, affect Asian and European sovereign credit risks in the opposite direction. Lastly, we model the arrival rates of credit events as a square-root diffusion process from which a pricing model is constructed and estimated over pre- and post-crisis periods. Then the resulting model is used to decompose credit spreads into risk premium and credit-event components. For most countries in our study, credit-event components appear to weight more than risk-premiums.

Part II The Financial Crisis of 2007–2011, 6 Market and Regulatory Failure

2018 ◽  
Author(s):  
Mccormick Roger ◽  
Stears Chris
Keyword(s):  
Risk Management ◽  
Financial Crisis ◽  
Credit Risk ◽  
Financial Market ◽  
Credit Rating ◽  
Third Party ◽  
Credit Rating Agencies ◽  
Rating Agencies ◽  
Market Participants ◽  
Regulatory Failure

This chapter first discusses the origins of the financial crisis, highlighting practice of ‘packaging and selling’ credit risk by financial market participants that led up to the crisis. It argues that although, in retrospect, many aspects of that practice look very bad indeed, the idea that banks might originate a credit exposure and then transfer the credit risk attached to it to a third party was, before the financial crisis, considered to be part and parcel of sound risk management. The discussion then turns to credit-rating agencies. Analysis of the financial crisis and ‘what went wrong’ has shown that rating agencies were too generous with their rating of many of the structured products that contributed to the collapse.

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