Abstract
This paper investigates the impact of foreign currency (FX) denominated assets and liabilities on systemic risk (SR) using a unique hand-collected dataset of bank-level FX positions for the period 2005-2012. The sample consists of 36 commercial banks from 10 countries of Central and Eastern Europe with large share of FX exposures in balance sheet. Overall, empirical findings indicate that systemic risk is dependent on the currency choice of banks’ positions. FX assets denominated in EUR and USD reduce banks’ contribution and exposure to SR, while FX assets and liabilities denominated in CHF enhance banks’ systemic importance. Fortunately enough, the negative influence of CHF positions on banks’ systemic importance might be reduced through internal and external governance channels: (i) prudent internal corporate governance mechanisms (like shareholder-friendly supervisory boards) significantly reduce the negative impact of CHF liabilities on systemic risk; (ii) a rigorous regulatory environment framework in banks’ home countries (tight restrictions on banking activity) significantly reduce the negative impact of CHF assets on systemic risk.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
