Data visualisation and macro-prudential regulation

During the pre-crisis period, or the micro-prudential one, mapping the whole financial sector was not very important: the focus was to ensure individual solvency. Nowadays two things have changed: much more data is being collected by supervisors, and much of the emphasis has shifted towards the stability of the whole system. And the very first step for a macro-prudential approach is to understand your own financial system. The last Quarterly Bulletin from the Bank of England does precisely this: mapping the financial system. It is just a first approach, still in a too high level to be used for macro-prudential supervision, but this is where things are going. They have a nice youtube video:

They do not include some parts, such as derivatives, due to huge gross positions that are netted out and would distort the rest of the map (something like showing, in the same graph, the risk premia of Greece and other countries during the last 10 years). Nevertheless, I hope to see an article just on derivatives in the future, because it is important to know which risks and sectors banks are hedging.

The next article in the same Bulletin talks about interconnectedness. This issue is very important regarding the concerns for systemic institutions, as more connected can have worse effects if they suffer some shock. But there are a lot of ways two institutions can be connected: direct interbank exposure, common exposure to borrowers, common exposure in securities, derivative exposures, … They show the UK networks for the first and the last case. More of this type of exercise is needed

This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s