The Relationship between the Complexity of Financial Derivatives and Systemic Risk

2011 ◽  
Author(s):  
Christian Koehler
Keyword(s):  
Systemic Risk ◽  
Financial Derivatives ◽  
The Relationship

Competition, Regulation, and Stability in Banking: Theory and Evidence

2016 ◽  
Author(s):  
Xavier Vives
Keyword(s):  
Risk Taking ◽  
Systemic Risk ◽  
Banking Sector ◽  
Regulatory Reform ◽  
Reform Process ◽  
Subprime Crisis ◽  
Empirical Perspective ◽  
The Relationship ◽  
Excessive Risk Taking ◽  
Excessive Risk

This chapter examines the relationship between competition and stability in the banking sector both from a theoretical and from an empirical perspective. It considers the competition–stability link from the standpoint of fragility both because of runs and because of excessive risk taking, along with the available evidence assessing how competition relates to systemic risk and how deregulation is associated with risk taking. It also explores the connection between market structure, consolidation, and internationalization and how it affects stability. Lessons from the subprime crisis are derived. The result of the analysis is to characterize the competition–stability trade-off, how regulation can alleviate it, and the need to coordinate competition policy and prudential regulation. The chapter concludes with a discussion of the regulatory reform process in the banking industry after the 2007–2009 crisis.

scholarly journals Financial Derivatives, Hedge Accounting and Tax Aggressiveness in Brazil

2020 ◽  
Vol 15 (29) ◽  
pp. 19-39
Author(s):  
Antonio Lopo Martinez ◽  
José Enrique Teixeira Reinoso ◽  
Rafael Moreira Antonio ◽  
Rogiene Santos
Keyword(s):  
First Generation ◽  
Economic Incentives ◽  
Financial Derivatives ◽  
Financial Instruments ◽  
Tax Aggressiveness ◽  
Tax Legislation ◽  
Hedge Accounting ◽  
Derivative Instruments ◽  
The Relationship ◽  
A Company

This study investigated the relationship between the use of financial derivatives by non-financial corporations and tax aggressiveness in Brazil. In research on the American market, evidence was identified that non-financial entity users of financial derivatives were more tax aggressive. However, there is no reason to assume that this behavior is replicated in the Brazilian market, since tax legislation does not offer the same economic incentives, i.e., since it imposes limits on the tax deductibility of losses with these financial instruments, except in derivatives’ well-documented and proven use as a hedge tool. To verify this point, companies were classified into users and non-users of first-generation financial derivatives, and associated this classification with tax aggression metrics. The study focus was 384 non-financial companies listed on the B3 in the period from 2005 to 2015. The results of regression analysis using a probit estimate have pointed, in a distinctly different way than the American reality, that the most tax aggressive companies tend to use fewer financial derivatives. Nevertheless, when the use of derivative instruments as a hedge was controlled, it was found that when a company adopts hedge accounting, it is more likely it will be more tax aggressive. The result is presumably explained by the Brazilian tax treatment that authorizes the deductibility of losses, regardless of earnings, when using the derivative as a hedge.

scholarly journals The Relationship between the US Economy’s Information Processing and Absorption Ratios: Systematic vs Systemic Risk

Entropy ◽  
2018 ◽  
Vol 20 (9) ◽  
pp. 662 ◽  
Author(s):  
Edgar Parker
Keyword(s):  
Information Processing ◽  
Financial Markets ◽  
Systemic Risk ◽  
Systematic Risk ◽  
Alternative Measure ◽  
Economic Downturns ◽  
The Us ◽  
Potential Methods ◽  
The Relationship ◽  
Entropic Measure

After the 2008 financial collapse, the now popular measure of implied systemic risk called the absorption ratio was introduced. This statistic measures how closely the economy’s markets are coupled. The more closely financial markets are coupled the more susceptible they are to systemic collapse. A new alternative measure of financial market health, the implied information processing ratio or entropic efficiency of the economy, was derived using concepts from information theory. This new entropic measure can also be useful in predicting economic downturns and measuring systematic risk. In the current work, the relationship between these two ratios and types of risks are explored. Potential methods of the joint use of these different measures to optimally reduce systemic and systematic risk are introduced.

scholarly journals Determinants of Systematic Risk : Empirical Evidence from Shariah Compliants Firms Listed on Bursa Malaysia

2020 ◽  
Vol 13 (1) ◽  
pp. 71-82
Author(s):  
Mohamad Nizam Jaafar ◽  
Amirul Afif Muhamat ◽  
Mohd Faizal Basri ◽  
Sharifah Faigah Syed Alwi
Keyword(s):  
Systemic Risk ◽  
Fixed Effects ◽  
Systematic Risk ◽  
Main Concern ◽  
Fixed Effects Model ◽  
Policy Makers ◽  
Growth Firms ◽  
Relationship Of ◽  
The Relationship ◽  
Business Philosophy

This paper is aimed at advancing empirical indications on micro variable factors determining systematic risk in Shariah complaints firms listed on Bursa Malaysia. This paper also attempts to identify whether the Shariah compliant firms are showing the same micro variables factors that determine systemic risk. The systematic issues have become the main concern to many related parties such as policy makers, investors and stakeholders as systematic risk is unable to be removed through diversification. Shariah compliant firms have their own unique systematic risk owing to their difference in business philosophy. A hypothesis between the relationship of the firms-specific micro variable factors and systemic risk are established on foregoing studies and theoretical framework respectively, and analyzed using the Fixed Effects Model tested on the data from 80 listed companies covering a period from 2009 to 2018. The results show that leverage and growth are the most significant factors of the systematic risk of Shariah compliant firms. Therefore, high leverage and growth firms are considered to be high risk for investment in Malaysia capital market.

scholarly journals Institutional regimes, long wave systemic risk and great international crisis of 2008-2012

2012 ◽  
Vol 59 (1) ◽  
pp. 1-12 ◽  
Author(s):  
Anthony O’Hara
Keyword(s):  
Financial Crisis ◽  
Systemic Risk ◽  
Sustainable Growth ◽  
Gdp Per Capita ◽  
International Crisis ◽  
Long Wave ◽  
Per Capita ◽  
The Relationship ◽  
Institutional Regimes

This paper studies the relationship between long-term growth of GDP per capita, institutional regimes of accumulation (ROA), systemic risk and the Great International Crisis of 2008-2010. The principle hypothesis behind the work is that the ROA provides a foundation for long-term growth as a type of fundamental variable, and that this growth provides a buffer against systemic risk in the sense that sustainable growth provides resources for debt provision and employment stimulation. The emergence of a viable ROA is crucial for long waves of growth which stimulate both private sector profit and public sector tax receipts which (using conventional terminology) reduce the structural deficit for both sectors. Low rates of long-term growth, therefore, provide a good indicator of the emergence of ?long wave systemic risk? (LWSR), which left such nations vulnerable to uncertainty, financial crisis and recession. The paper investigates the inability of growth for various decades to ?cover? instabilities associated with the Great Crisis, leading to high rates of LWSR, especially for European and North American nations that bore the brunt of the crisis.

Systemic risk and firm size: is notional amount a good metric?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
David Reiffen ◽  
Bruce Tuckman
Keyword(s):  
Systemic Risk ◽  
Risk Exposure ◽  
Data Set ◽  
Content Type ◽  
Financial Regulations ◽  
Interest Rate Swaps ◽  
Regulatory Data ◽  
Size Measure ◽  
Good Policy ◽  
The Relationship

Purpose Many recently enacted financial regulations exempt smaller entities. While the literature on systemic risk provides efficiency justifications for certain exemptions, the efficiency rationale depends on measuring size appropriately. This paper aims to argue that notional amount, the metric used in derivatives regulations, is a flawed measure of an entity’s contribution to systemic risk. This study discusses an alternative size measure – entity-netted notionals or ENNs – which better reflects risk exposure as discussed in that literature and provides empirical evidence on these two metrics. Design/methodology/approach This study first discusses the relationship between the systemic risk literature and size-based exemptions. This study then describes the current metric and our risk-based alternative. Finally, this paper presents regulatory data on US interest rate swaps (IRS) and uses this to characterize some features of risk exposure. Findings The unique data set provides empirical insight into how well the size metric used in current regulations corresponds to a more theoretically oriented measure. This study finds the relationship between the metrics is fairly weak for entities for whom the size-based exemption will soon be ending, and provide an empirical basis for understanding why they differ. This study also provides evidence on the correlation of risk within this group of entities. Practical implications The paper has important implications for regulation of derivatives and financial markets more generally. To the extent exemptions for small entities make good policy, having the appropriate metric is critical. As such, the metric could be a valuable tool for regulators. Originality/value This paper examines the likely objectives of size-based exemptions from financial regulations and relates them to the systemic risk literature. It provides a unique empirical description of IRS positions, which allows us to examine the relationship between the metric used by regulators and our alternative.

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