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Decomposing systemic risk: the roles of contagion and common exposures

Retrieved on:

Tuesday, April 23, 2024

Tao, CIBC, Tax, RWA, Risk, European Systemic Risk Board, Research Papers in Economics, Contagion, RT, The Big Six, NBC, International, Shock, Observation, Bank of Canada, HTC, European Economic Association, The Washington Post, Great, JPMorgan Chase, Paper, GM, Environment, Political economy, Journal of Financial Economics, COVID-19, Perception, BNS, Website, Silicon, IAT, Cifuentes, Probability, Balance sheet, RAN, Medical classification, Algorithm, Information technology, Quarterly Journal of Economics, LN, Nature, European Journal, Royal Bank of Canada, Technical report, Journal of Political Economy, Equitable Bank, Bankruptcy, RAI, PDF, Private, ECB, Policy, CHS, Supercapacitor, Social science, Journal of Financial Stability, Intelligence (journal), Elsevier, Home, Cambridge University Press, Journal, Springer Science+Business Media, Research, Classification, Regulation, News, EQB, Credit, Literature, AIK, European Central Bank, COVID, SVAR, Section 5, Management science, DRA, M4, VL, National bank, Government, ISSN, BMO, Panel, International Financial Reporting Standards, BIS, FIS, Basel III, Commerce, Scotiabank, C32, Econometric Society, Interbank, Fraud, Section 4, Bank, Schedule, VAR, Section 3, The Journal of Finance, RBC, Volcanic explosivity index, Fire, Wassily Leontief, Financial economics, Metric, Section 2, L14, Central bank, Superintendent, Bank of Montreal, Kronecker, BOC, Lithium, BCBS, Sale, Macroeconomic Dynamics, Christophe, CWB, LBC, NHA, Imperial Bank, Private equity, Quarterly Journal, National Bank of Canada, C51, Canadian Western Bank, Currency crisis, JEL classification codes, Victor Drai, L.1, MFC, Silicon Valley Bank, EB, Laurentian Bank of Canada, Federal, RA1, Series, W0, FEVD, Journal of Econometrics, Aggregate, University, FRB, MB, Financial institution, Element, Health, Book, Angels & Airwaves, Common, OSFI, GFC, Reproduction, K L, Systematic, Housing, G21, Home Capital Group, Communications satellite

Abstract

Key Points:

Abstract
We evaluate the effects of contagion and common exposure on banks? capital through
a regression design inspired by the structural VAR literature and derived from the balance
sheet identity.
Contagion can occur through direct exposures, fire sales, and market-based
sentiment, while common exposures result from portfolio overlaps.
First, we document that contagion varies in time, with the highest levels
around the Great Financial Crisis and lowest levels during the pandemic.
Our new framework complements
traditional stress-tests focused on single institutions by providing a holistic view of systemic risk.
While existing literature presents various contagion narratives, empirical findings on
distress propagation - a precursor to defaults - remain scarce.
We decompose systemic risk into three elements: contagion, common exposures, and idiosyncratic risk, all derived from banks? balance sheet identities.
The contagion factor encompasses both sentiment- and contractual-based elements, common exposures consider systemic
aspects, while idiosyncratic risk encapsulates unique bank-specific risk sources.
Our empirical analysis of the Canadian banking system reveals the dynamic nature of contagion, with elevated levels observed during the Global Financial Crisis.
In conclusion, our model offers a comprehensive lens for policy intervention analysis and
scenario evaluations on contagion and systemic risk in banking.
This
notion of systemic risk implies two key components: first, systematic risks (e.g., risks related
to common exposures) and second, contagion (i.e., an initially idiosyncratic problem becoming
more widespread throughout the financial system) (see Caruana, 2010).
In this paper, we decompose systemic risk into three components: contagion, common exposures, and idiosyncratic risk.
First, we include contagion in three forms: sentiment-based contagion, contractual-based
contagion, and price-mediated contagion.
In this context,
portfolio overlaps create common exposures, implying that bigger overlaps make systematic
shocks more systemic.
With the COVID-19 pandemic starting
in 2020, contagion drops to all time lows, potentially related to strong fiscal and monetary
supports.
That is, our
structural model provides a framework for analyzing the impact of policy interventions and
scenarios on different levels of contagion and systemic risk in the banking system.
This provides a complementary approach to
seminal papers that took a structural approach to contagion, such as DebtRank Battiston et al.
More generally, the literature on networks and systemic risk started with Allen and Gale
(2001) and Eisenberg and Noe (2001).
The matrix is structured as follows:
1
In our model, we do not distinguish between interbank liabilities and other types of liabilities.
In other words, we can and aim to estimate different degrees
of contagion per asset class, i.e., potentially distinct parameters ?Ga .
For that, we build three major
metrics to check: average contagion, average common exposure, and average idiosyncratic risk.
N i j
et ,
Further, we define the (N ?K) common exposure matrix as Commt = [A

(20)

et ]diag (?C
?L

such that average common exposure reads,
average common exposure =

1 XX
Commik,t .
N i j
(22)

20

? c ),

The three metrics?average contagion, average common exposure, and average idiosyncratic risk?provide a comprehensive framework for understanding banking dynamics.
Figure 4 depicts the average level of risks per systemic risk channel: contagion risk, common exposure, and idiosyncratic risk.
Figure 4: Average levels of contagion (Equation (20)), common exposure (Equation (21)), and idiosyncratic risk
(Equation (22)).
The market-based contagion is the contagion due to
investors? sentiment, and the network is an estimate FEVD on volatility data.
For most of
the sample, we find that contagion had a bigger impact on the variance than common exposures.

NeurAxis Reports Fourth Quarter and Fiscal Year 2023 Financial Results

Retrieved on:

Tuesday, April 9, 2024

Neuraxis, BCBS, Abdominal pain, Patient, API, Health insurance

Gross profit margin in the fourth quarter of 2023 was 86.4%, compared to 87.7% for the same period in 2022.

Key Points:

Gross profit margin in the fourth quarter of 2023 was 86.4%, compared to 87.7% for the same period in 2022.
Selling expenses for fiscal year 2023 were $323.6 thousand, a decrease of 21.3% compared to $410.9 thousand for fiscal year 2022.
Selling expenses for the fourth quarter of 2023 were $72.6 thousand, an increase of 10.1% compared to $66.0 thousand for the fourth quarter of 2022.
G&A costs for the fourth quarter of 2023 were $2.0 million, an increase of 46.1%, compared to $1.4 million for the fourth quarter of 2022.

Behavioral Health’s Forge Health Marks Next Phase with Board of Directors Expansion and Advisory Board Creation

Retrieved on:

Thursday, March 28, 2024

Mental health and substance use care continue to be far from affordable or accessible for millions of people in need.

Key Points:

Mental health and substance use care continue to be far from affordable or accessible for millions of people in need.
However, the gap takes a notable step toward closing today as Forge Health announces a significant board and advisory expansion.
The New York-based provider of hybrid treatment options, serving thousands of patients, has added three new members to its board of directors, including a new board observer, and announced the formation of an Advisory Board.
The Forge care model utilizes multidisciplinary clinical teams, data analytics, and streamlined care delivery to provide individualized, whole-person care that concurrently addresses mental health and substance use issues while driving improved health outcomes.

As interest rates surge: flighty deposits and lending

Retrieved on:

Friday, April 5, 2024

Neumark, Face, BCBS, Quarterly Journal of Economics, COVID-19, Cash, MRO, Intensive word form, Duration, Disclosure, The, Return, Bank statement, DFR, Research Papers in Economics, Investment, DEP, Federal, Prudential, CEMFI, Core, Synthetic control method, Interest rate risk, Journal of Political Economy, Policy, OLS, Logic, PDF, LOAN, ECB, Risk, International, Shock, Quarterly Journal, ROA, Risk management, Panetta, HHS, T2, T3, E51, Silicon Valley Bank, Common, Social science, NBER, EBA, Propensity score matching, Control, JEL, University Challenge 2013–14, Database, Rigidity, Yb, Social Science Research Network, The Journal of Finance, Bednarek, Journal, Research, Public policy, AT1, Journal of Monetary Economics, PSM, Big data, McPhail, Literature, Medical classification, Federal Reserve, Robustness, Paper, NPL, Financial economics, Deposit account, European Central Bank, Gérard Schivardi, Remuneration, Central bank, Conference, Environment, Political economy, MDA, Equation, Collateral damage, Monetary economics, Monetary policy, Kernel, Hoffmann, Website, Movement, Reproduction, Financial intermediary, Silicon, FE, Working paper, Injection, American Economic Review, Data, G21, AnaCredit, Probability, Total, Lombard, Bank

Key Points:

Frank Elderson: Taking into account climate and nature in monetary policy and banking supervision around the world

Retrieved on:

Wednesday, April 3, 2024

This box investigates how households have responded to the 2021-23 inflationary episode using evidence from the ECB’s Consumer Expectations Survey.

Key Points:

This box investigates how households have responded to the 2021-23 inflationary episode using evidence from the ECB’s Consumer Expectations Survey.
The findings suggest that households have primarily adjusted their consumption spending to cope with higher inflation.

The impact of regulatory changes on rating behaviour

Retrieved on:

Tuesday, April 2, 2024

Długosz, Disagreement, Pi bond, Direct lending, Key, Research Papers in Economics, Finance Secretary (India), University of Oxford, STS, Journal of Economic Perspectives, International, American Economic Review, Life, Columbia Business School, British Academy of Management, Risk assessment, ABS, Rating, EBA, Development, Reputational damage, OBS, CRA, Bond credit rating, Cras, Journal of Monetary Economics, CDO, Becker, Paper, 2007–2008 financial crisis, Raja, University, Environment, Journal of Financial Economics, Perception, H3, Website, Securitization, Working paper, Market, Collection, Total, European Banking Authority, Quarterly Journal of Economics, BBB, Whetten, Column, ESMA, European Journal, Issuer, Asset quality, Information revolution, Federal Reserve Bank, OLS, Statistics, PDF, Private, ECB, Surety, Weighted-average life, CCC, European Commission, Social science, Journal of Financial Stability, JEL, Real, Bias, Journal, Research, Classification, Certification, Commission, Credit, The Journal of Finance, Literature, Karel Škréta, European Central Bank, AA, Finance Research Letters, Origination (telephony), Monetary economics, Section 5, Xia, Kraft Foods, Government, AAA, Mukherjee, Finance, Deku, DOI, White, Risk, IOSCO, MBS, OECD, Wang, Section 4, University Challenge 2013–14, Section 3, Ashcraft, Financial management, Accounting, Financial economics, Fannie Mae, Conference, Pressure, Central bank, Griffin, University of Michigan, Systematic review, EPRS, Freddie Mac, Loan, BCBS, Palgrave Macmillan, R2, Microeconomics, Quarterly Journal, Financial statement analysis, The Japanese Economic Review, Christian Social Union (UK), Green, University of Huddersfield, PSM, Management, Security (finance), Security, Civil service commission, Private placement, American Economic Journal, GFC, Reproduction, IMF, Small business, Trustee, Data

Abstract

Key Points:

Abstract
We examine rating behaviour after the introduction of new regulations regarding Credit Rating
Agencies (CRAs) in the European securitisation market.
There is empirical evidence of rating catering in the securitisation market in the pre-GFC period (He et al.,
2012; Efing and Hau, 2015).
Competition among
CRAs could diminish ratings quality (Golan, Parlour, and Rajan, 2011) and promotes rating shopping by
issuers resulting in rating inflation (Bolton et al., 2012).
This paper investigates the impact of the post-GFC regulatory changes in the European
securitisation market.
In 2011, in addition to the creation of
European Securities and Markets Authority (ESMA), a regulatory and supervisory body for CRAs was
introduced.
We examine how rating behaviours have changed in the European securitisation market after the
introduction of these new regulations.
We utilise the existence of multiple ratings and rating agreements between
CRAs to identify the existence of rating shopping and rating catering, respectively (Griffin et al., 2013; He
et al., 2012; 2016).
We find that the regulatory changes have been effective in tackling conflicts of interest between issuers
and CRAs in the structured finance market.
Rating catering, which is a direct consequence of issuer and
CRA collusion, seems to have disappeared after the introduction of these regulations.
There is empirical evidence of rating catering in the securitisation market in
the pre-GFC period (He et al., 2012; Efing and Hau, 2015).
Competition among CRAs could diminish ratings quality (Golan, Parlour,
and Rajan, 2011) and promotes rating shopping by issuers resulting in rating inflation (Bolton et
al., 2012).
This paper investigates the impact of the post-GFC regulatory changes in the European
securitisation market.
In 2011, in addition
to the creation of European Securities and Markets Authority (ESMA), a regulatory and
supervisory body for CRAs was introduced.
We find that the regulatory changes have been effective in tackling conflicts of interest
between issuers and CRAs in the structured finance market.
Rating catering, which is a direct
consequence of issuer and CRA collusion, seems to have disappeared after the introduction of
these regulations.
Investors who previously demanded higher spreads for rating agreements for a
multiple rated tranche, did not consider the effect of rating harmony as a risk in the post-GFC
period.
Regarding rating shopping, we find that the effectiveness of the changes has been limited,
potentially for two reasons.
Additionally, we also find that rating over-reliance might still be an issue, especially
Rating catering is a broad term and it can involve rating shopping.
They re-examine the rating shopping and rating
catering phenomena in the US market by looking at the post-crisis period between 2009 and 2013.
Using 622 CDO tranches, they also observe the existence of rating shopping and the diminishing
of the rating catering.
Firstly, our main focus is the EU?s CRA Regulation and its effectiveness in reducing
rating inflation and rating over-reliance.
To the best of our knowledge, this paper is the first to
examine the effectiveness of the EU?s CRA regulatory changes on the investors? perception of
rating inflation in the European ABS market.
Hence, the coverage and quality of our dataset constitutes significant addition
to the literature and allows us to test the rating shopping and rating catering more authoritatively.
The following section reviews the literature
on securitisation concerning CRAs and conflicts of interest, and outlines the regulatory changes
introduced in the post-GFC period.
Firstly, ratings became ever more important as the Securities and
Exchange Commission (SEC) 5 began heavily relying on CRA assessments for regulatory purposes
(i.e.
the investment mandates that highlight rating agencies as the main benchmark for investment
eligibility) (SEC, 2008; Kisgen and Strahan, 2010; Bolton et al., 2012).
issuers) as one of the main explanations for the rating inflation (He et al., 2011; 2012; Bolton
et al., 2012; Efing and Hau, 2015).
Bolton et al., (2012) demonstrate that competition
promotes rating shopping by issuers, leading to rating inflation.
The last phase, CRA III, was implemented in mid-2013 and involves an additional
set of measures on reducing transparency and rating over-reliance.
As mentioned above, rating inflation can be caused by rating shopping
In order to be eligible to use the STS classification, main parties (i.e.
The higher the difference in the number of ratings for a
given ABS tranche, the greater the risk of rating shopping.
Alternatively, the impact of the new
regulations could be limited when it comes to reducing rating shopping.
This is because, firstly,
the conflict of interest between securitisation parties is not necessarily the sole cause for the
occurrence of rating shopping.
L is a set of variables (Multiple ratings, CRA reported, Rating agreement) that
we utilise interchangeably to capture the rating shopping and rating catering behaviour.
Hence, issuers are incentivised to report the highest possible rating and
ensure each additional rating matches the desired level.
All in all, our results suggest that
the new stricter regulatory measures have been effective in tackling conflicts of interest and
reducing rating inflation caused by rating catering.
Self-selection might be a concern in analysing the impact of the
new measures and investors? response with regard to the rating inflation.
This
result is in line with the earlier findings suggesting that regulatory changes have reduced investors?
suspicion of rating inflation and increased trust of CRAs.
Conclusion
Several regulatory changes were introduced in Europe following the GFC aimed at tackling
conflicts of interest between issuers and CRAs in the ABS market.
Utilising a sample of 12,469
ABS issued between 1998 and 2018 in the European market, this paper examined whether these
changes have had any impact on rating inflations caused by rating shopping and rating catering
phenomena.
We find that the
effectiveness of the changes has been more limited on rating shopping potentially for two reasons.
Tranche Credit Rating is the rating reported for a tranche at launch.

Natera Announces Commercial Coverage for Prospera™ Kidney and Prospera Heart™ from a Top BCBS Plan

Retrieved on:

Thursday, March 7, 2024

The coverage policy includes serial testing with Prospera to assess graft status and identify the risk of rejection following a kidney or heart transplant.

Key Points:

The coverage policy includes serial testing with Prospera to assess graft status and identify the risk of rejection following a kidney or heart transplant.
“Improving long-term outcomes for this population starts with more accurate and non-invasive tools to identify potential graft issues earlier.”
Natera and its academic partners have published significant peer-reviewed evidence supporting the clinical utility of Prospera.
In addition, Natera has completed enrollment in the PEDAL and MOTR trials.
These are both multi-site, prospective studies designed to provide novel evidence supporting the clinical utility of Prospera, with expected publication in 2024.

Chamber Secures $8 Million in Funding to Empower Cardiologists to Transition into Value-Based Care

Retrieved on:

Wednesday, March 6, 2024

Chamber, Cardiovascular disease, Cardiology, Ageing, Entrepreneurship, Frustration, VBC, Head, Health, Patient, City Lights, BCBS, Mortality, Mid-Atlantic (United States), Meetup, Partnership, Health insurance

WASHINGTON, March 6, 2024 /PRNewswire/ -- Chamber Cardio (Chamber), a technology-enabled cardiology solution, announced today an $8 million seed round led by General Catalyst with support from existing investor AlleyCorp and participation from Company Ventures, American Family Ventures, and City Light. In an industry where the transition to value-based care remains limited among cardiologists, Chamber emerges as a dedicated partner, uniquely positioned to support and collaborate with cardiology practices.

Key Points:

In an industry where the transition to value-based care remains limited among cardiologists, Chamber emerges as a dedicated partner, uniquely positioned to support and collaborate with cardiology practices.
Cardiovascular disease drives over $400 billion in annual healthcare expenditures, and Chamber aims to tackle this issue head-on by making the transition to value-based care more accessible.
The funding will be utilized to further develop Chamber's technology, expand the cardiology network nationally, and grow the team.
Chamber addresses this by equipping cardiologists with real-time insights, evidence-based guidelines, care teams, and contracting support to streamline workflows, enabling them to focus on patient care.

Color Health Named a Strategic Ally of the Blue Cross Blue Shield National Labor Office

Retrieved on:

Tuesday, February 27, 2024

American Cancer Society, International Brotherhood of Teamsters, Health, ACS, Cancer, Strategic alliance, Survival rate, Death, Family, Diagnosis, NLO, BCBS, Union, Partnership, Nursing

BURLINGAME, Calif., Feb. 27, 2024 /PRNewswire/ -- Color Health has become a Strategic Alliance partner of the Blue Cross Blue Shield (BCBS) National Labor Office (NLO), paving the way for union leaders to address the growing impact of cancer. This collaboration specifically promotes a more comprehensive approach to addressing cancer – beginning with evidence-based guidelines and full clinical care management from prevention through diagnosis. The alliance will address the high costs associated with late-stage cancer treatment and acute care utilization to support better survival rates and reduced healthcare costs for participating union populations.

Key Points:

BURLINGAME, Calif., Feb. 27, 2024 /PRNewswire/ -- Color Health has become a Strategic Alliance partner of the Blue Cross Blue Shield (BCBS) National Labor Office (NLO), paving the way for union leaders to address the growing impact of cancer.
This collaboration specifically promotes a more comprehensive approach to addressing cancer – beginning with evidence-based guidelines and full clinical care management from prevention through diagnosis.
"Color's approach focuses on delivering care to union members where they are, whether that's at home or on a job site.
This strategic alliance will help union leaders and members take powerful steps towards proactive healthcare, ultimately saving lives and reducing costs."

INSIGHTEC FOCUSED ULTRASOUND NOW COVERED FOR PARKINSON'S DISEASE PALLIDOTOMY IN US

Retrieved on:

Monday, February 26, 2024

Quality of life, High-intensity focused ultrasound, Blue Shield, DSM-IV codes, Hope, Tremor, Elevance Health, Safety, Parkinson's disease, Anesthesia, BCBS, Neuro, Insurance, Health insurance

HAIFA, Israel and MIAMI, Feb. 26, 2024 /PRNewswire/ -- Anthem Blue Cross and Blue Shield (BCBS) has become the first insurance provider to extend coverage for the innovative focused ultrasound pallidotomy procedure as part of their comprehensive Parkinson's disease treatment coverage. This decision brings hope and relief to more than 1 million Americans living with Parkinson's who now have greater access to an incisionless treatment alternative, when medications have been unsuccessful or have resulted in intolerable side effects.

Key Points:

Insightec, a global leader in focused ultrasound, developed the pioneering treatment that uses MR-guided focused ultrasound (MRgFUS) to destroy a small area of brain tissue involved in the motor symptoms of Parkinson's.
"Parkinson's disease is the second-most common neurodegenerative disorder in the US, affecting as many as 1 million Americans," continues Dee Kolanek, VP of Market Access and Reimbursement for Insightec.
"By offering coverage reimbursement for focused ultrasound pallidotomy, Anthem BCBS is demonstrating its leadership in the industry, as well as their commitment to the well-being of their members and a significant patient population."
For additional information about Anthem Blue Cross and Blue Shield and the specific qualifications of coverage for the Insightec focused ultrasound thalamotomy procedure, please contact their member services or visit their official website .