Financial Stability

CBDC Stress Test in a Dual-Currency Setting ArXiv ID: 2511.13384 “View on arXiv” Authors: Catalin Dumitrescu Abstract This study explores the potential impact of introducing a Central Bank Digital Currency (CBDC) on financial stability in an emerging dual-currency economy (Romania), where the domestic currency (RON) coexists with the euro. It develops an integrated analytical framework combining econometrics, machine learning, and behavioural modelling. CBDC adoption probabilities are estimated using XGBoost and logistic regression models trained on behavioural and macro-financial indicators rather than survey data. Liquidity stress simulations assess how banks would respond to deposit withdrawals resulting from CBDC adoption, while VAR, MSVAR, and SVAR models capture the macro-financial transmission of liquidity shocks into credit contraction and changes in monetary conditions. The findings indicate that CBDC uptake (co-circulating Digital RON and Digital EUR) would be moderate at issuance, amounting to around EUR 1 billion, primarily driven by digital readiness and trust in the central bank. The study concludes that a non-remunerated, capped CBDC, designed primarily as a means of payment rather than a store of value, can be introduced without compromising financial stability. In dual currency economies, differentiated holding limits for domestic and foreign digital currencies (e.g., Digital RON versus Digital Euro) are crucial to prevent uncontrolled euroisation and preserve monetary sovereignty. A prudent design with moderate caps, non remuneration, and macroprudential coordination can transform CBDC into a digital liquidity buffer and a complementary monetary policy instrument that enhances resilience and inclusion rather than destabilising the financial system. ...

Network topology of the Euro Area interbank market ArXiv ID: 2502.15611 “View on arXiv” Authors: Unknown Abstract The rapidly increasing availability of large amounts of granular financial data, paired with the advances of big data related technologies induces the need of suitable analytics that can represent and extract meaningful information from such data. In this paper we propose a multi-layer network approach to distill the Euro Area (EA) banking system in different distinct layers. Each layer of the network represents a specific type of financial relationship between banks, based on various sources of EA granular data collections. The resulting multi-layer network allows one to describe, analyze and compare the topology and structure of EA banks from different perspectives, eventually yielding a more complete picture of the financial market. This granular information representation has the potential to enable researchers and practitioners to better apprehend financial system dynamics as well as to support financial policies to manage and monitor financial risk from a more holistic point of view. ...

Economic effects on households of an augmentation of the cash back duration of real estate loan ArXiv ID: 2409.14748 “View on arXiv” Authors: Unknown Abstract This article examines the economic effects of an increase in the duration of home loans on households, focusing on the French real estate market. It highlights trends in the property market, existing loan systems in other countries (such as bullet loans in Sweden and Japanese home loans), the current state of the property market in France, the potential effects of an increase in the amortization period of home loans, and the financial implications for households.The article points out that increasing the repayment period on home loans could reduce the amount of monthly instalments to be repaid, thereby facilitating access to credit for the most modest households. However, this measure also raises concerns about overall credit costs, financial stability and the impact on property prices. In addition, it highlights the differences between existing lending systems in other countries, such as the bullet loan in Sweden and Japanese home loans, and the current characteristics of home loans in France, notably interest rates and house price trends. The article proposes a model of the potential effects of an increase in the amortization period of home loans on housing demand, housing supply, property prices and the associated financial risks.In conclusion, the article highlights the crucial importance of household debt for individual and economic financial stability. It highlights the distortion between supply and demand for home loans as amortization periods increase, and the significant rise in overall loan costs for households. It also underlines the need to address structural issues such as the sustainable reduction in interest rates, the stabilization of banks’ equity capital and the development of a regulatory framework for intergenerational lending to ensure a properly functioning market. ...

Non-stationary Financial Risk Factors and Macroeconomic Vulnerability for the UK ArXiv ID: 2404.01451 “View on arXiv” Authors: Unknown Abstract Tracking the build-up of financial vulnerabilities is a key component of financial stability policy. Due to the complexity of the financial system, this task is daunting, and there have been several proposals on how to manage this goal. One way to do this is by the creation of indices that act as a signal for the policy maker. While factor modelling in finance and economics has a rich history, most of the applications tend to focus on stationary factors. Nevertheless, financial stress (and in particular tail events) can exhibit a high degree of inertia. This paper advocates moving away from the stationary paradigm and instead proposes non-stationary factor models as measures of financial stress. Key advantage of a non-stationary factor model is that while some popular measures of financial stress describe the variance-covariance structure of the financial stress indicators, the new index can capture the tails of the distribution. To showcase this, we use the obtained factors as variables in a growth-at-risk exercise. This paper offers an overview of how to construct non-stationary dynamic factors of financial stress using the UK financial market as an example. ...

Securitized Banking and the Run on Repo ArXiv ID: ssrn-1454939 “View on arXiv” Authors: Unknown Abstract The Panic of 2007-2008 was a run on the sale and repurchase market (the “repo” market), which is a very large, short-term market that provides financi Keywords: Repurchase Agreement (Repo), Liquidity Crisis, Shadow Banking, Financial Stability, Systemic Risk, Fixed Income (Money Markets) Complexity vs Empirical Score Math Complexity: 2.0/10 Empirical Rigor: 3.0/10 Quadrant: Philosophers Why: The paper is primarily a conceptual and empirical analysis of the 2007-2008 financial crisis, using novel data to trace contagion but lacking advanced mathematical formalism or backtesting frameworks. flowchart TD A["Research Goal:<br>Explain the 2007-2008 Panic"] --> B["Key Methodology:<br>Analyze Bank Holding Company Data"] B --> C["Data Inputs:<br>Repo Transactions & Financial Statements"] C --> D["Computational Processes:<br>Run Regressions on Liquidity Creation"] D --> E["Key Findings/Outcomes:<br>1. Repo funding runs caused the crisis<br>2. Increased securitization heightened systemic risk"]

Why Did Some Banks Perform Better During the Credit Crisis? A Cross-Country Study of the Impact of Governance and Regulation ArXiv ID: ssrn-1442652 “View on arXiv” Authors: Unknown Abstract Though overall bank performance from July 2007 to December 2008 was the worst since at least the Great Depression, there is significant variation in the cross-s Keywords: bank performance, financial crisis, Great Depression, cross-sectional variation, financial stability, Banks Complexity vs Empirical Score Math Complexity: 2.5/10 Empirical Rigor: 8.0/10 Quadrant: Street Traders Why: The paper relies on standard regression analysis of real-world bank data (cross-sectional, panel) and uses established governance/regulation indices, requiring substantial data collection and implementation; the math is primarily descriptive statistics, linear regressions, and portfolio sorting rather than advanced stochastic calculus or novel models. flowchart TD A["Research Question<br>Why did some banks perform better<br>during the 2007-2008 crisis?"] --> B{"Methodology"} B --> C["Data: Bank stock returns<br>and governance/regulation metrics"] C --> D["Cross-sectional regression analysis<br>Impact of governance & regulation<br>on crisis performance"] D --> E["Computational Process<br>Comparing bank performance<br>across countries/sectors"] E --> F["Key Findings"] F --> G["Stronger governance & regulation<br>correlated with better performance"] F --> H["Significant cross-sectional<br>variation despite systemic crisis"]

Securitized Banking and the Run on Repo ArXiv ID: ssrn-1440752 “View on arXiv” Authors: Unknown Abstract The Panic of 2007-2008 was a run on the sale and repurchase market (the “repo” market), which is a very large, short-term market that provides financing for a w Keywords: Repurchase Agreement (Repo), Liquidity Crisis, Shadow Banking, Financial Stability, Systemic Risk, Fixed Income (Money Markets) Complexity vs Empirical Score Math Complexity: 2.0/10 Empirical Rigor: 7.5/10 Quadrant: Street Traders Why: The paper uses statistical correlation analysis on novel, real-world financial datasets (repo rates, haircuts, and credit spreads) to trace contagion, demonstrating high empirical rigor. Mathematical complexity is low, relying primarily on descriptive statistics and linear correlations rather than advanced stochastic calculus or dense modeling. flowchart TD A["Research Goal: What caused the<br>2007-2008 financial panic?"] B["Methodology: Analyze Repo Market<br>and Securitization Data"] C["Data: Repo Haircuts &<br>Liquidity of Securities"] D["Process: Quantify Liquidity<br>Transformation by Banks"] E["Outcome: Panic was a run on repo<br>driven by collateral haircuts"] A --> B B --> C C --> D D --> E

Defining Financial Stability ArXiv ID: ssrn-879012 “View on arXiv” Authors: Unknown Abstract The main objective of this paper is to propose a definition of financial stability that has some practical and operational relevance. Financial stability is def Keywords: Financial stability, Systemic risk, Macroprudential policy, Financial regulation, Risk management, Macro Complexity vs Empirical Score Math Complexity: 2.0/10 Empirical Rigor: 1.0/10 Quadrant: Philosophers Why: The paper is a conceptual and theoretical work proposing a definition of financial stability, with no mathematical models, derivations, or empirical data analysis presented in the excerpt. flowchart TD A["Research Goal<br>Define Financial Stability<br>with Practical Relevance"] --> B["Methodology<br>Conceptual Analysis &<br>Systemic Risk Framework"] B --> C["Inputs<br>Macroprudential Policy<br>& Financial Regulation Data"] C --> D["Computational Process<br>Agent-Based Modeling &<br>Risk Transmission Analysis"] D --> E["Key Outcomes<br>Operational Definition<br>Macroprudential Tools<br>Risk Management Metrics"]

A Primer on StructuredFinance ArXiv ID: ssrn-832184 “View on arXiv” Authors: Unknown Abstract Regulatory concerns about the impact of structured claims on financial stability in times of stress are frequently too sweeping and indistinct for a judicious a Keywords: Structured claims, Financial stability, Regulatory concerns, Derivatives Complexity vs Empirical Score Math Complexity: 3.5/10 Empirical Rigor: 2.0/10 Quadrant: Philosophers Why: The paper defines structured finance concepts with moderate conceptual modeling but lacks advanced mathematical derivations, while its empirical rigor is low as it focuses on definitions and regulatory concerns without backtesting, datasets, or implementation details. flowchart TD A["Research Goal: Assess validity of regulatory concerns regarding structured claims"] --> B["Methodology: Multi-tier analysis of financial stability"] B --> C["Data: 2008 Financial Crisis & 2020 Pandemic stress events"] C --> D["Computation: Segregating structured vs. unstructured market impacts"] D --> E{"Analysis of Derivatives & Structured Claims"} E --> F["Key Finding: Regulatory concerns are often sweeping and indistinct"] E --> G["Key Finding: Structured claims do not universally threaten stability"] F --> H["Outcome: Advocacy for judicious, precise regulation"] G --> H