Macroprudential oversight, risk communication and visualization

This paper discusses the role of risk communication in macroprudential oversight and of visualization in risk communication. Beyond the soar in data availability and precision, the transition from firm-centric to system-wide supervision imposes vast data needs. Moreover, except for internal communication as in any organization, broad and effective external communication of timely information related to systemic risks is a key mandate of macroprudential supervisors, further stressing the importance of simple representations of complex data. This paper focuses on the background and theory of information visualization and visual analytics, as well as techniques within these fields, as potential means for risk communication. We define the task of visualization in risk communication, discuss the structure of macroprudential data, and review visualization techniques applied to systemic risk. We conclude that two essential, yet rare, features for supporting the analysis of big data and communication of risks are analytical visualizations and interactive interfaces. For visualizing the so-called macroprudential data cube, we provide the VisRisk platform with three modules: plots, maps and networks. While VisRisk is herein illustrated with five web-based interactive visualizations of systemic risk indicators and models, the platform enables and is open to the visualization of any data from the macroprudential data cube

How do central banks identify risks? A survey of indicators

Para los bancos centrales son cruciales el desarrollo y el mantenimiento de un marco de identificación de riesgos que permita la detección temprana de posibles amenazas para la estabilidad financiera y que facilite la aplicación de las políticas más adecuadas. Este documento resume los principales indicadores desarrollados para la identificación de riesgos tanto por parte del Banco de España como por otros bancos centrales y autoridades prudenciales. Así, esta recopilación de indicadores contribuye a mejorar la transparencia y la comunicación del Banco de España en su objetivo de potenciar la estabilidad del sistema financiero. El Banco de España utiliza algunos de estos indicadores en sus tareas regulares de identificación y seguimiento de riesgos, mientras que otros proceden de trabajos de investigación concretos. Este conjunto de medidas puede clasificarse en dos amplias categorías, en función del tipo de riesgo monitorizado: estándar o sistémico. Dada la naturaleza multidimensional del riesgo sistémico, su identificación va más allá de la propia suma de los riesgos estándar presentados en este documento (concretamente, riesgos de crédito, macroeconómico, de mercado, de liquidez y bancario). Este estudio también clasifica los indicadores en función del tipo de segmento institucional donde se originan los riesgos; concretamente, sector público, hogares, sociedades no financieras, bancos, sector financiero no bancario, mercado inmobiliario residencial y mercados financieros. Este trabajo muestra que los indicadores desarrollados y utilizados habitualmente por el Banco de España permiten una monitorización exhaustiva de las vulnerabilidades potenciales. En cualquier caso, el mantenimiento de un sistema de identificación de riesgos requiere una adaptación continua a los nuevos desarrollos teóricos y herramientas econométricas, así como a los nuevos desafíos. En este sentido, actualmente se están desarrollando nuevos indicadores para evaluar los riesgos derivados del cambio climático y los relacionados con los ciberriesgos. Se espera que las necesidades de seguimiento relacionadas con estos riesgos aumenten en el futuro.For central banks, it is crucial to develop and maintain risk identification frameworks that allow them to detect in good time and address potential threats to financial stability with the most appropriate policy tools. This paper reviews the main indicators developed for this purpose by the Banco de España and by other central banks and prudential authorities. In this way, this stocktaking exercise contributes to improving the transparency and effective communication of the financial stability-related tasks carried out at the Banco de España. Some of the indicators are used in regular Banco de España surveillance activities, whereas others pertain to specific research activities. We classify our set of measures into two broad categories depending on the risk monitored: standard or systemic risks. Given the multidimensional nature of systemic risk, its identification goes beyond the sum of the standard risks explored in this paper (namely credit, macroeconomic, market, and liquidity and bank risks). This survey also classifies indicators by the type of institutional segment that triggers risks; namely, sovereigns, households, non-financial corporations, banks, non-bank financial sector, residential real estate and the financial markets. This work shows how the measures developed and regularly used at the Banco de España allow potential vulnerabilities to be comprehensively monitored. Nevertheless, maintaining an adequate risk-identification framework requires continuous adaptation to new theoretical developments and econometric tools, and, more importantly, to emerging challenges. In this respect, there is a current drive to develop new indicators to assess potential risks arising from climate change and those linked to the risk of system-wide cyber incidents. It is expected that the monitoring needs related to these risks will increase in the future

Towards a Macro-Prudential Leading Indicators Framework for Monitoring Financial Vulnerability

The 1997 Asian financial crisis has revealed the limitations of the current state of monetary and financial monitoring system in most Asian countries in comprehensively addressing financial and monetary problems and issues. This paper attempts to propose a macro-prudential indicators (MPI) framework for monitoring vulnerability of financial markets. A literature survey on studies leading indicators has been presented. An illustrative and simple framework for analysis and interpretation of core set of 22 leading indicators (that were identified from 67 commonly agreed Asian Development Bank Indicators for selected Asia-Pacific countries, namely Fiji, Indonesia, the Philippines, Thailand, Viet Nam, and Taiwan, Province of China ) has been presented using annual time-series data for the afore-mentioned countries. A correlation and volatility analysis of Thailand’s annual and quarterly data (1994-2002) has also been performed in order to propose a simple methodology for constructing benchmarks for early warning signals and for developing a composite indicators. This above analysis carried out in this paper highlights the usefulness of MPIs as a tool for monitoring financial vulnerability.

The IMF Getting what it Needs in (as) the Aftermath of the Crisis

Since 2009, the IMF has profoundly transformed all of its major policies in governance, surveillance, lending, and resources; leading to an institutional metamorphosis. This work looks at the fundamental changes in Fund´s main policies focusing on two broad questions: (i) what has been done?, placing into context the magnitude and nature of the policy changes; and, specially, (ii) what more can be done?, following a positive approach on the additional reforms that can be pursued, taking into account the current context of reform fatigue and the state of the debate within the IMFDesde 2009, el FMI ha transformado profundamente todas sus principales políticas de gobernanza, vigilancia, préstamos y recursos; dando lugar a una metamorfosis institucional. Este trabajo analiza los cambios en las principales políticas del Fondo centrándose en dos grandes preguntas: (i) ¿Qué reformas se han llevado a cabo?, poniendo en contexto la magnitud y la naturaleza de las reformas acometidas; y, sobre todo, (ii) ¿qué más se puede hacer?, siguiendo un enfoque positivo sobre las reformas adicionales que pueden impulsarse, teniendo en cuenta el actual contexto de fatiga reformista y el estado del debate en el seno del FMI

Relation between solvency and profitability of Spanish banking institutions

Treballs Finals del Màster de Ciències Actuarials i Financeres, Facultat d'Economia i Empresa, Universitat de Barcelona, Curs: 2019-2020, Tutoria: Joaquim Viola ComabellaIn this work, a descriptive analysis is exposed, both at a theoretical and practical level, regarding the relationship that exists between Solvency and Profitability of Spanish deposit institutions, especially banks. The analysis is structured in two clearly differentiated parts. On the one hand, in the first part of the theoretical content, a review is made of the different regulations on banking prudential matters and the different causes that make the profitability of the banking sector do not recover to the levels prior to the 2008 financial crisis. On the other hand, in the second part of practical content, a multivariate statistical model known as the “Structural Equation Model” is implemented in order to see the relationship between solvency regulation and the profitability of entities. As a result, we can observe as a regression how all the new banking regulation, whose objective is to guarantee solvency, has contributed to improving profitability in recent years, but has not been able to return it to levels prior to 200

The efficacy of macroeconomic policies in resolving financial market disequilibria: A cross-country analysis

This study attempts to evaluate the efficacy of macroeconomic policies in resolving financial market disequilibria and to elucidate the influence of the political landscape and global financial integration on the policymaking process. The current investigation examines three macroeconomic policies (i) government spending, (ii) liquidity provision and (iii) central bank interest rates by analysing 21 countries around the globe. The results suggest that government spending is a suboptimal macroeconomic policy for mitigating imbalances in financial markets, as it may have destabilizing effects. Liquidity provision was found to be ineffective in facilitating financial market stability whereas the adjustment of interest rates was found to be a viable tool for mitigating financial market imbalances. Therefore, an appropriate policy framework would comprise the following: prudent government spending, conditional liquidity provision and a reduction in interest rates following the development of financial market disequilibria. Furthermore, this study found strong evidence against the notion that political orientations influence policy frameworks which were designed to redress financial market disequilibria. This study also found that global financial integration does not influence the policymaking process

Identifying the Core Driver for the Islamic Banking Capital Adequacy Regulation

Introduction: COVID-19 pandemic raised the stability challenges for the modern banking systems. As a remedy, the regulators and investors turned their eyes to the Islamic Banking. Many people view it as a full substitute to the dominant conventional banking establishments. We hypothesized that the benefits of the Islamic Banking can be fully enjoyed if and only if it is accompanied with the robust regulatory framework. Such a framework could offer room for the national discretion to define ‘alpha’ parameter within the capital adequacy ratio. The novelty of our paper is the largest collected to date set of alpha value embedded in the Islamic Banking jurisdictions. Purpose: This research paper aims to able to identify the core driver to locally determine the value of alpha. The credit-to-GDP ratio was shown to be such a driver. We demonstrated that the earlier academic research had offered the Vasicek-based theoretical models for the Islamic Banking that had implied right the opposite values of alpha. Methodology: We have eight independent determinants with presenting the alpha values for 11 countries registered in 2007 and in 2016.Those are the four macroeconomic variables. we have collected the input data for the regression model. Findings: The credit-to-GDP ratio was shown to be such a driver. We demonstrated that the earlier academic research had offered the Vasicek-based theoretical models for the Islamic Banking that had implied right the opposite values of alpha. Thus, the usage of the determinant revealed by us could be of help to the central bankers when shaping the framework for Islamic Banking capital adequacy. Paper Type: Research Articl