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September 29, 2017

IMF published a working paper on the interconnectedness among global systemically important banks (G-SIBs) and global systemically important insurers (G-SIIs). The paper examines connectedness among United States, European, and Asian G-SIBs and G-SIIs, using publicly available daily equity returns and intra-day volatility data from October 2007 to August 2016.

Results reveal strong regional clusters of return and volatility connectedness among G-SIBs and G-SIIs. Compared to Asia, selected G-SIBs and G-SIIs headquartered in the United States and Europe appear to be main sources of market-based connectedness. Total system connectedness—among all G-SIBs and G-SIIs—tends to rise during financial stress, which is corroborated by a balance-sheet-oriented systemic risk measure. The paper also demonstrates the significant influence of economic policy uncertainty and U.S. long-term interest rates on total connectedness among systemically important institutions, along with the important role of bank profitability and asset quality in driving bank-specific return connectedness. Interconnectedness among G-SIBs and G-SIIs has important financial stability implications.

 

Related Link: Working Paper (PDF)

Keywords: International, Banking, Insurance, G-SIB, G-SII, Interconnectedness, Financial Stability, Systemic Risk, IMF

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