Committee to Establish a National Institute of Finance (CE-NIF), the Center for Financial Policy at the R.H. Smith School of Business at the University of Maryland and the Pew Financial Reform Project are organizing a workshop on “Frameworks for Systemic Risk Monitoring.” It will be held in Washington DC on June 21-22, 2010.
The conference brings together leading minds from academia, industry, and government (see agenda). Key speakers include Markus Brunnermeier (Princeton), Simon Johnson (MIT), Raghuram Rajan (Chicago), John Geanakoplos (Yale), Rama Cont (Columbia) and Alan King (IBM Research).
Both versions of the regulatory reform legislation that were recently passed in US Congress call for increased efforts to monitor the financial system and respond to signs of heightened systemic risk. Regulators will need new tools to realize this mandate. The aim of the workshop is to move the debate forward on the development of these new tools. The conference will discuss alternative frameworks for understanding systemic risk and strategies for risk monitoring and the implications each of them has for data and systems requirements. A background paper which reviews the debate on systemic risk is also available for download.
Systemically important banks get better terms for their overnight borrowing
A new paper by Farooq Akram and Casper Christophersen entitled "Interbank overnight interest rates – gains from systemic importance" analyses the Norvegian overnight interbank interest rates paid by banks. They find that during the Financial crisis, the interest rates were substantially below indicative quotes of interest rates provided by major banks. The interest rate variation is explained by the relative size and connectedness of the banks, implying favorable terms for banks of systemic importance.
Moreover, interest rates are found to depend not only on overall liquidity in the interbank market, but possibly on its distribution among banks as well, suggesting exploitation of market power by banks with surplus liquidity. They also find evidence of stronger effects on interest rates of systemic importance, credit ratings and liquidity demand and supply since the start of the current financial crisis.
An open-source implementation of the algorithm for uncovering the interbank loans was developed as part of this project. The algorithm is available as part of the Financial Network Analyzer.