Ni na voljo v slovenščini.
Garbrand Wiersema
- 19 November 2025
- MACROPRUDENTIAL BULLETIN - ARTICLE - No. 32Details
- Abstract
- This article expands the 2025 EU-wide stress test by incorporating a system-wide perspective to capture contagion risks across investment funds and insurance corporations alongside the banking sector. It examines potential short-term contagion effects under the EBA’s adverse scenario as financial institutions adjust their balance sheets in response to stress. These adjustments would result in additional average CET1 ratio depletion of 29 basis points, increasing first-round effects by 12%. Among institutional sectors, investment funds, in particular equity funds, face the greatest losses under the EBA’s adverse scenario, while banks with less sophisticated hedging capabilities are also significantly affected. The findings emphasise the importance of a holistic, system-wide perspective to capture spillover effects both within and across financial sectors. Furthermore, the results show how solvency-driven liquidity shocks can trigger market reactions, which in turn propagate through the financial system and amplify the losses stemming from initial exogenous shocks. The article also includes two boxes which expand the way in which the EBA methodology accounts for counterparty credit risk. It does so by looking at exposures to additional institutional sectors such as central clearing counterparties (Box 1), and the losses that materialise when the failures of counterparties become more interdependent (Box 2).
- JEL Code
- D85 : Microeconomics→Information, Knowledge, and Uncertainty→Network Formation and Analysis: Theory
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G22 : Financial Economics→Financial Institutions and Services→Insurance, Insurance Companies, Actuarial Studies
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
- 11 August 2025
- WORKING PAPER SERIES - No. 3091Details
- Abstract
- Traditional exposure measures focus on direct exposures to evaluate the losses an institution is exposed to upon the default of a counterparty. Since the Global Financial Crisis of 2007-2008, the importance of indirect exposures via common asset holdings is increasingly recognized. Yet direct and indirect exposures do not to capture the losses that result from shock propagation and amplification following the counterparty's default. In this paper, we introduce the concept of \higher-order exposures" to refer to these spill-over losses and propose a way to formalize and quantify these. Using granular data on the South African banking and investment fund sectors and a contagion model that captures the most commonly studied contagion channels and their interactions, we demonstrate that higher-order exposures make up a significant part of exposures -particularly during times of financial distress when exposures matter most. We also show that higher-order exposures cannot simply be extrapolated from direct or indirect exposures, since they depend strongly on the network structure and the robustness of individual institutions. Our findings suggest that exposures should be properly understood as consisting of direct, indirect and higher-order exposures in the design and calibration of those tools in the regulators' arsenal where exposures matter - including large exposure limits, capital requirement calibration, stress test design and resolution. Failure to do so may result in both lax ex-ante regulation and ill-informed ex-post handling of financial crises.
- JEL Code
- G01 : Financial Economics→General→Financial Crises
G17 : Financial Economics→General Financial Markets→Financial Forecasting and Simulation
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation