Guidance to Assess the Systemic Importance of Financial Institutions, Markets

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Guidance to Assess the Systemic Importance of FinancialInstitutions, Markets and Instruments: Initial Considerations— Background PaperReport to theG-20 Finance Ministers and Central Bank Governors

Prepared by:Staff of the International Monetary Fund and the Bank for International Settlements,and the Secretariat of the Financial Stability BoardOctober 2009

Guidance to Assess the Systemic Importance of Financial Institutions, Markets, andInstruments: Initial Considerations—Background Paper

Prepared by Monetary and Capital Markets Department, International Monetary FundMonetary and Economics Department, Bank for International Settlements andthe Secretariat of the Financial Stability BoardOctober 28, 2009Contents Page

....................................................................................................................................2I. Summary of Responses to the Country Survey of Systemic Issues.......................................3A. Background on the Survey........................................................................................3B. Analysis of Quantitative Survey Data.......................................................................4C. Analysis of Qualitative Survey Information.............................................................9II. Case Studies........................................................................................................................16III. Analytical Techniques.......................................................................................................24A. Network Analysis....................................................................................................24B. Portfolio Models of Risk Based on Market Data....................................................29IV. Reference Material.............................................................................................................32

Tables

1. Survey Respondents...............................................................................................................4

Figures

1. Factors Contributing to Classification of Systemic Institutions............................................62. Factors Contributing to Classification of Systemic Markets, Instruments............................83. Factors Contributing to Classification of Systemic Infrastructure, Rating Agencies............94. MBBG: Total Assets............................................................................................................185. EU-25: Herfindahl Index.....................................................................................................186. MBBG: Total Liabilities......................................................................................................187. MBBG: Market Capitalization.............................................................................................188. MBBG: Debt-to-Equity Ratio..............................................................................................189. MBBG: Loan-to-Deposit Ratio............................................................................................1810. Network Analysis: A Diagrammatic Representation of Systemic Interbank Exposures...2611. Capital Adequacy Ratios after Hypothetical Credit Shocks..............................................27

Appendix

I Country Survey of Systemic Issues....................................................................................42

2

GLOSSARY

ABCP Asset-backed commercial paper AIGFP AIG Financial ProductsBCBS Basel Committee on Banking SupervisionBIS Bank for International SettlementsCAR Capital adequacy ratioCCA Contingent claims analysisCDOs Collateralized debt obligationsCDS Credit default swapCGFS Committee on the Global Financial SystemCLOs Collateralized loan obligationsDNB De Nederlandsche Bank ECB European Central Bank ECOFIN Economic and Financial Affairs CouncilFDIC Federal Deposit Insurance CorporationFRA Forward rate agreementFRBNY Federal Reserve Bank of New York IAIS International Association of Insurance SupervisorsIMF International Monetary FundIOSCO International Organization of Securities CommissionsiPOD Implied probability of defaultLBHI Lehman Brothers Holding Inc.MBBGs Major British banking groupsOIS Overnight index swapOTC Over-the-counter RAMSI Risk Assessment Model for Systemic InstitutionsRMBS Residential mortgage-backed securitiesSIVs Special investment vehiclesSRM Systemic Risk Monitor

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