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The Impact of Systemic Risk on Financial Stability, and Sustainable Economic Growth

A special issue of Sustainability (ISSN 2071-1050). This special issue belongs to the section "Economic and Business Aspects of Sustainability".

Deadline for manuscript submissions: closed (31 December 2023) | Viewed by 3302

Special Issue Editors


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Guest Editor
Faculty of Economics and Administrative Sciences, Economics, Tekirdağ Namık Kemal University, Tekirdağ, Turkey
Interests: econometrics theory; applied macro econometrics; economics
Special Issues, Collections and Topics in MDPI journals

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Guest Editor
College of Business, Wilmington University, New Castle, DE 19720, USA
Interests: financial markets and institutions; international finance; and macroeconomics

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Guest Editor
Department of Public Finance, Gaziantep University, Universite Bulvari Kilis Yolu Uzeri Sehitkamil, Gaziantep, Turkey
Interests: finance; behavioral finance; financial markets and institutions

Special Issue Information

Dear Colleagues,

Financial stability as well as systemic risk, which can have catastrophic ramifications for the operation of the financial system, has become a major concern for central banks and policymakers. The transmission of high volatility across global financial markets following the September 11, 2001 attacks and the Global Financial Crisis (GFC) of 2007–2009 has shown that traditional risk models are inadequate for measuring the spillover effects of major shocks in financial markets. Moreover, traditional risk models failed to account for the growing complexity of financial products, and the impact of financial information flows, and to explain the differences in the endogenous behavior of different investors in the financial system. As a result, a consensus emerged that regulatory authorities should make identifying and measuring systemic risk a top priority.

According to the United Nations (UN), systemic risks can impede efforts toward reducing poverty and development. Financial crises have frequently shown that events in one economy may spill over to other economies that may have negative consequences for the business environment, employment, and economic growth, as well as social and environmental systems. Financial instability leads to rises in crime, poverty, and inequality globally. Therefore, monitoring and controlling systemic risk is not only very important for a healthy financial system but also important for the business environment, employment, poverty, and income inequality as well as sustainable economic development.

As the global financial crisis heightened the specter of institutions' financial collapse due to the so-called systemic risk, assessing systemic risk in the financial system has become critical following the global financial crisis.  Although there is no consensus on the definition of systemic risk in the literature, it is related to three important aspects of financial markets: interconnectedness, spillovers, and the source of the shock that compromises the integrity of the financial system. After the GFC, the attention toward large financial institutions has significantly increased and the paradigm of “too big to fail” has come to the fore because large financial institutions tend to exploit their position in the financial system to their advantage in times of crisis, a well-known moral hazard problem. These large financial institutions are also called “systemically important financial institutions – SIFIs” in the literature. The SIFIs are critical in that their failure would disrupt financial activities and, should they fail, the cost to the economy would be potentially very high.

The aim of the Special Issue is to examine the impact of systemic risk on financial stability and sustainable economic growth. This is related to the United Nations Sustainable Development Goal 10 because issues related to systemic risk can potentially have an impact on inequality. Recall that UN Sustainable Development Goal 10.5 is to: "Improve the regulation and monitoring of global financial markets and institutions and strengthen the implementation of such regulations."  It is well known that financial instability can have adverse effects on economic inequality both in emerging and developed countries. In this context, high-quality papers that focus on systemic risk and financial stability are welcome for the Special Issue. It is expected that empirical results in the Special Issue are crucial for the policy-makers and regulators.

In this Special Issue, original research articles and reviews are welcome. Research areas may include (but are not limited to) the following:

  • Critical issues in the measurement, modeling, and management of systemic risk;
  • Systemic risk in financial, banking, and insurance sectors;
  • Do economic factors lead to shifts in financial connectedness? Country-level, regional, and global evidence;
  • The effect of global factors (GFC, European debt crisis, oil crisis, COVID-19, the Russia–Ukraine conflicts, etc.,) on the connectedness of financial markets;
  • Examining probable causes or increases in systemic risk that could have an adverse effect on the economy of developing and developed economies;
  • Potential ramifications of Brexit and Evergrande on local, regional, and global scales of financial connectedness and systemic risk;
  • Static and dynamic connectedness between financial digital assets;
  • Static and dynamic connectedness of financial stress across developed and emerging or frontier markets;
  • Financial connectedness of developed and emerging or frontier markets impacted by global shocks;
  • Return and risk spillovers between financial markets.

We look forward to receiving your contributions.

Prof. Dr. Emrah Ismail Çevik
Prof. Dr. Sel Dibooglu
Dr. Mehmet Fatih Bugan
Guest Editors

Manuscript Submission Information

Manuscripts should be submitted online at www.mdpi.com by registering and logging in to this website. Once you are registered, click here to go to the submission form. Manuscripts can be submitted until the deadline. All submissions that pass pre-check are peer-reviewed. Accepted papers will be published continuously in the journal (as soon as accepted) and will be listed together on the special issue website. Research articles, review articles as well as short communications are invited. For planned papers, a title and short abstract (about 100 words) can be sent to the Editorial Office for announcement on this website.

Submitted manuscripts should not have been published previously, nor be under consideration for publication elsewhere (except conference proceedings papers). All manuscripts are thoroughly refereed through a single-blind peer-review process. A guide for authors and other relevant information for submission of manuscripts is available on the Instructions for Authors page. Sustainability is an international peer-reviewed open access semimonthly journal published by MDPI.

Please visit the Instructions for Authors page before submitting a manuscript. The Article Processing Charge (APC) for publication in this open access journal is 2400 CHF (Swiss Francs). Submitted papers should be well formatted and use good English. Authors may use MDPI's English editing service prior to publication or during author revisions.

Keywords

  • systemic risk
  • financial stability
  • economic growth
  • sustainability

Published Papers (3 papers)

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Research

23 pages, 1971 KiB  
Article
Analysis of Systemic Risk on the Financial Performance during the COVID-19 Pandemic: The Case of the Colombian Banking Industry
by Joan Sebastián Rojas Rincón, Andrés Mauricio Mejía Martínez, Andrés Ricardo Riveros Tarazona and Julio César Acosta-Prado
Sustainability 2024, 16(5), 1716; https://doi.org/10.3390/su16051716 - 20 Feb 2024
Viewed by 768
Abstract
This study seeks to analyze the financial performance of the Colombian banking industry during the COVID-19 pandemic. The frame of reference is based on the concept of systemic risk; concerning this, the pandemic is conceived as an external shock, which impacted the dynamics [...] Read more.
This study seeks to analyze the financial performance of the Colombian banking industry during the COVID-19 pandemic. The frame of reference is based on the concept of systemic risk; concerning this, the pandemic is conceived as an external shock, which impacted the dynamics of the banking industry. To conduct this study, a descriptive-correlational scope is proposed, from which an analysis of different accounting items related to the banking business is made and validated by expert judgment. The analysis horizon covers six years, but the focus is placed on March 2020, when COVID-19 was declared a pandemic by the World Health Organization (WHO). For this purpose, a longitudinal design is proposed, which analyzes the time series describing the behavior of some relevant items in the management of the banking business, such as operating revenue, provisions, interest on deposits and drawings, valuation of trading derivatives, and technology-related expenses. In addition, these items’ correlation with banking establishments’ performance is analyzed. The results of the study show that during the pandemic period, there was a significant increase in the level of volatility in the foreign exchange market, which impacted the operating revenue of banking establishments. It is concluded that, although exchange rate volatility affected the results of the banking industry, the main factor related to the financial performance of Colombian banks is their business itself, i.e., revenue from the loan portfolio and the quality of the loan portfolio. Therefore, systemic risk must be addressed regarding its implications on banks’ main profit drivers, such as portfolio revenue, cost of deposits, and provisions. Based on the above, it is recommended that Colombian banking establishments make greater efforts to diversify their sources of income to reduce their exposure to systemic risk situations. Full article
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17 pages, 3454 KiB  
Article
Modular Structures of Trade Flow Networks in International Commodities
by Zannatul Mawa Koli, Ashadun Nobi, Mahmudul Islam Rakib, Jahidul Alam and Jae Woo Lee
Sustainability 2023, 15(22), 15786; https://doi.org/10.3390/su152215786 - 09 Nov 2023
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Abstract
We explore the evolution of modular structure within the International Trade Network (ITN) for eight commodities, employing the Louvain module optimization method. The interactions among countries in the realm of trade are shaped by various factors, including economic conditions and geographical proximity. These [...] Read more.
We explore the evolution of modular structure within the International Trade Network (ITN) for eight commodities, employing the Louvain module optimization method. The interactions among countries in the realm of trade are shaped by various factors, including economic conditions and geographical proximity. These countries are often categorized into continental groups, a classification that frequently persists even after the detecting process of modules. Nonetheless, African countries display a penchant for shifting among different modules over time. Observations of module trends unveil the increase in regional trade up until 2005, followed by plateaus marked with interruptions during significant crises, such as the 2012–2014 EU recession and the 2018 trade war. Notably, the 2018 trade war witnessed a sharp upsurge in module, attributed to robust alliances between major players like China and the USA. These modular dynamics are not uniform across different commodities; they exhibit varying degrees of module and distinct responses during times of crisis, with human-made goods displaying heightened sensitivity. Core nations, such as the USA, Germany, China, and Japan, exert significant influence over the commodities and often demonstrate a cohesive approach when navigating through crises. The analysis of modular dynamics provides valuable insights into global trade trends, fostering sustainability in trade practices, and comprehending the impacts of crises on various commodities. Full article
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24 pages, 2069 KiB  
Article
Understanding Systemic Risk Dynamics and Economic Growth: Evidence from the Turkish Banking System
by Sinem Derindere Köseoğlu
Sustainability 2023, 15(19), 14209; https://doi.org/10.3390/su151914209 - 26 Sep 2023
Viewed by 865
Abstract
The banking crisis experienced at the beginning of 2023 in the aftermath of the global 2008 crisis served as a stark reminder of the importance of systemic risk once again across the world. This study examines the dynamics of systemic risk in the [...] Read more.
The banking crisis experienced at the beginning of 2023 in the aftermath of the global 2008 crisis served as a stark reminder of the importance of systemic risk once again across the world. This study examines the dynamics of systemic risk in the Turkish banking system and its impact on sustainable economic growth between the period of 2007 and 2022. Through the Component Expected Shortfall (CES) method and quantile spillover analysis, private banks, such as Garanti Bank (GARAN), Akbank (AKBNK), İş Bank (ISCTR), and Yapı ve Kredi Bank (YKBNK), are identified as major sources of systemic risk. The analysis reveals a high level of interconnectedness among the banks during market downturns, with TSKB, Vakıfbank (VAKBNK), İş Bank (ISCTR), Halk Bank (HALKB), Akbank (AKBNK), Yapı ve Kredi Bank (YKBNK), and Garanti Bank (GARAN) serving as net risk transmitters, while QNB Finansbank (QNBFB), ICBC Turkey Bank (ICBCT), Şekerbank (SKBNK), GSD Holding (GSD), and Albaraka Türk (ALBRK) act as net risk receivers. Employing the Markov switching VAR (MS-VAR) model, the study finds that increased systemic risk significantly reduces economic growth during heightened financial periods. These findings underscore the importance of monitoring systemic risks and implementing proactive measures in the banking sector. The policy implications highlight the requirement for regulators and policymakers to prioritize systemic risk management. Close monitoring helps detect weaknesses and imbalances that could put financial stability at risk. Timely implementation of policies and rules is crucial in the prevention of the accumulation of systemic risks and in dealing with the existing hazards. Such measures protect the stability of the banking sector and mitigate potential negative effects on the broader economy. Full article
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