Interconnectedness, Vulnerabilities, and Crisis Spillovers: Implications for the New Financial Stability Framework

The global crisis has turned the spotlight on the channels of shock transmission across countries, sectors, and markets. Particular emphasis has been placed on the role of interconnectedness and systemic vulnerabilities in the crisis propagation. The crisis has also rekindled efforts to re-examine the existing financial stability framework, which in many countries includes financial stability reports published by central banks with the aim to monitor systemic risks. I examine three questions that aim to broaden our understanding of the shock transmission channels during the crisis and the effectiveness of financial stability reports as a risk-monitoring tool: (1) What was driving the shock propagation in international interbank markets? (2) Are nonfinancial firms that operate in countries with banking problems more prone to financial distress? (3) Is there an empirical link between the publication of financial stability reports and financial stability

Financial Stability Reports:What Are they Good for?

The global financial crisis has renewed policymakers'' interest in improving the policy framework for financial stability, and an open question is to what extent and in what form should financial stability reports be part of it. We examine the recent experience with central banks'' financial stability reports, and find?despite some progress in recent years?that forward-looking perspective and analysis of financial interconnectedness are often lacking. We also find that higher-quality reports tend to be associated with more stable financial environments. However, there is only a weak empirical link between financial stability report publication per se and financial stability. This suggests room for improvement in terms of the quality of financial stability reports.Financial stability;Public debt;Data quality assessment framework;banking, financial system, banking system, stock market, banking crises, banking crisis, stock market volatility, financial sector, financial risk, financial strength, financial markets, domestic financial system, financial institutions, foreign exchange, bond, banking sector, financial market, financial instability, international country risk guide, financial strength rating, stock market index, bank of england, capital adequacy, deposit money banks, deposit money, foreign exchange market, systemic banking crises, banking systems, financial conglomerates, bond market, bank act, equity market, domestic bond, bank publications, bank reports, international banks, bond markets, systemic banking crisis, banking stability, sovereign risk, banking operations, central banking, financial vulnerabilities, bond yields, bank staff, financial volatility, bank regulation, equity markets, short term debt, bank of spain, bank distress, stock markets, tier 1 capital, bank policy, financial regulation, bank ratings, liquidity support, bank soundness, resource allocation, financial stocks, deposit takers, financial services, money market, domestic bond markets, stock market indices, financial systems, financial sector development, money markets, financial market development, bank of korea, bank failures, bank credit, bank deposits, domestic bond market, sovereign risk rating, bank stability, stock exchange