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An asset network systemic risk (ANWSER) model is presented to investigate the impact of how shadow banks are intermingled in a financial system on the severity of financial contagion. Particularly, the focus of this study is the impact of the following three representative topologies of an interbank loan network between shadow banks and regulated banks. (1) Random mixing network: shadow banks and regulated banks are …
Haircutting non-cash collateral has become a key element of the post-crisis reform of the shadow banking system and OTC derivatives markets. This article develops a parametric haircut model by expanding haircut definitions beyond the traditional value-at-risk measure and employing a double-exponential jump-diffusion model for collateral market risk. Haircuts are solved to target credit risk measurements, including pr…
The definition of deposit substitutes in Philippine tax law fails to consider the maturity of a debt instrument. This makes it possible for long-term bonds to be considered as deposit substitutes if they meet the 20-lender rule, taxable at 20% final tax. However, long-term debt instruments cannot realistically function as deposit substitutes even if they fall in the hands of 20 or more lenders. First, long-term debt …
Using public data (Forbes Global 2000) we show that the asset sizes for the largest global firms follow a Pareto distribution in an intermediate range, that is ``interrupted'' by a sharp cut-off in its upper tail, where it is totally dominated by financial firms. This flattening of the distribution contrasts with a large body of empirical literature which finds a Pareto distribution for firm sizes both across countri…
In its capacity as debt issuer, the state has played a growing role in financial life over the last 30 years. To examine this role and connect it to shadow banking, the paper develops the concept of the ‘repo trinity’, which captures a set of policy objectives that central banks outlined after the 1998 Russian crisis, the first systemic crisis of collateral-based finance. The repo trinity connected financial stabilit…
Systemic liquidity risk, defined by the IMF as "the risk of simultaneous liquidity difficulties at multiple financial institutions", is a key topic in macroprudential policy and financial stress analysis. Specialized models to simulate funding liquidity risk and contagion are available but they require not only banks' bilateral exposures data but also balance sheet data with sufficient granularity, which are hardly a…
In the LIBOR era, banks routinely tied revolving credit facilities to credit-sensitive benchmarks. This study assesses the Across-the-Curve Credit Spread Index (AXI) -- a transparent, transaction-based measure of wholesale bank funding costs -- as a complement to SOFR, summarizing its behavior, construction, and loan-pricing implications. AXI aggregates observable unsecured funding transactions across short- and long…