Financial Stability and Systemic Risk in Times of Pandemic

A special issue of Risks (ISSN 2227-9091).

Deadline for manuscript submissions: closed (30 June 2021) | Viewed by 35270

Special Issue Editor

SGH Warsaw School of Economics, al. Niepodległości 162, 02-554 Warsaw, Poland
Interests: financial stability; macroprudential policy; central banking; systemic risk; safety net; banking regulations

Special Issue Information

Dear Colleagues,

The current COVID-19 pandemic crisis in the global economy opens new, unique avenues of research. Advancements in the field of identifying and managing systemic risks are of utmost importance now more than ever. With this Special Issue, we cordially invite researchers to share results of their empirical and theoretical studies that would also carry practical policy implications on how to maintain financial stability and limit systemic risks in the financial system. Especially welcomed, though not exclusively, are papers with cross-country perspectives, assessing the impact of low-interest environment, the COVID-19 pandemic, as well as those quantifying the spread of contagion on financial markets. We hope your paper in the Special Issue of Risks will contribute to the understanding of dynamics of financial system in this highly uncertain period.

Dr. Pawel Smaga
Guest Editor

Manuscript Submission Information

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Keywords

  • Financial stability
  • Systemic risk
  • Safety net
  • Contagion
  • Pandemic
  • COVID-19
  • Financial system

Published Papers (7 papers)

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Research

21 pages, 548 KiB  
Article
Impairment of Assets and Market Reaction during COVID-19 Pandemic on the Example of WSE
Risks 2021, 9(10), 183; https://doi.org/10.3390/risks9100183 - 15 Oct 2021
Cited by 4 | Viewed by 3622
Abstract
The main task of the article is to examine the impact of the reported impairment of assets (IoA) on the market reaction of investors on the Warsaw Stock Exchange [WSE] in the crisis condition caused by the COVID-19 pandemic. There is a need [...] Read more.
The main task of the article is to examine the impact of the reported impairment of assets (IoA) on the market reaction of investors on the Warsaw Stock Exchange [WSE] in the crisis condition caused by the COVID-19 pandemic. There is a need to verify whether the disclosure of this information in the period of economic downturn will cause a similar negative reaction as in previous topics in this area. Research undertaken in this article helps identify the rules of behaviour (in the short term) whether the reaction of investors on updating the company’s assets in crisis conditions is different than in times of prosperity. The main hypothesis will be verified using the event study methodology. It allows to verify whether the upcoming information about IoA during the COVID-19 pandemic confirms an existence of statistically significant negative abnormal returns. Based on the 55 cases of current reports informing about IoA, which were submitted to the investors in the year 2020 and finally qualified for the research sample, I have not observed statistically significant negative abnormal returns on the adjacent days. The results are different from those obtained by researchers who study the market reaction to the IoA under non-crisis conditions of the economy. Full article
(This article belongs to the Special Issue Financial Stability and Systemic Risk in Times of Pandemic)
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22 pages, 1964 KiB  
Article
How the COVID-19 Pandemic Affects Bank Risks and Returns: Evidence from EU Members in Central, Eastern, and Northern Europe
Risks 2021, 9(10), 180; https://doi.org/10.3390/risks9100180 - 09 Oct 2021
Cited by 12 | Viewed by 4107
Abstract
The purpose of this study was to examine banks’ strategic adjustments to the challenges brought about by the COVID-19 pandemic. It examines how deep and pressing the necessary transformations are, based on an analysis of the banking sectors of Central, Eastern, and Northern [...] Read more.
The purpose of this study was to examine banks’ strategic adjustments to the challenges brought about by the COVID-19 pandemic. It examines how deep and pressing the necessary transformations are, based on an analysis of the banking sectors of Central, Eastern, and Northern European countries (CENE): the Czech Republic, Hungary, Poland, Slovakia, Estonia, Latvia, and Lithuania. The main research question posed asks how the pandemic and the subsequent economic crisis have changed banks’ sources of profits and risks, forcing banks to speed up structural transformations. In particular, the study identified and verified the following hypotheses: that the initial impact of the COVID-19 pandemic on banks in the analyzed region was heterogeneous and that the pandemic has intensified the challenges of digitalization and forced banks to speed up the digital transformations of their business models. The methodology employed was the dynamic panel data model—generalized method of moment (GMM-SYS version), using an adjusted dataset from the BankFocus database for unconsolidated bank data for the 2016–2020 period. The econometric analysis was supplemented with a CENE bank survey, researching bank attitudes and the stage of digital transformation. The results of the survey revealed that the majority of the surveyed banks consider themselves digitalization leaders, with a clearly articulated and implemented digitalization strategy. The main finding of the study was that the digital focus may help large banks in CENE to address and offset problems revealed by the panel data model: that traditional sources of incomes, based on intermediation and interest-related incomes, no longer contribute positively to profitability but also to stability. Full article
(This article belongs to the Special Issue Financial Stability and Systemic Risk in Times of Pandemic)
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19 pages, 3540 KiB  
Article
Evaluation of Changes on World Stock Exchanges in Connection with the SARS-CoV-2 Pandemic. Survival Analysis Methods
Risks 2021, 9(7), 121; https://doi.org/10.3390/risks9070121 - 22 Jun 2021
Cited by 7 | Viewed by 2235
Abstract
The aim of our research was to compare the intensity of decline and then increase in the value of basic stock indices during the SARS-CoV-2 coronavirus pandemic in 2020. The survival analysis methods used to assess the risk of decline and chance of [...] Read more.
The aim of our research was to compare the intensity of decline and then increase in the value of basic stock indices during the SARS-CoV-2 coronavirus pandemic in 2020. The survival analysis methods used to assess the risk of decline and chance of rise of the indices were: Kaplan–Meier estimator, logit model, and the Cox proportional hazards model. We observed the highest intensity of decline in the European stock exchanges, followed by the American and Asian plus Australian ones (after the fourth and eighth week since the peak). The highest risk of decline was in America, then in Europe, followed by Asia and Australia. The lowest risk was in Africa. The intensity of increase was the highest in the fourth and eleventh week since the minimal value had been reached. The highest odds of increase were in the American stock exchanges, followed by the European and Asian (including Australia and Oceania), and the lowest in the African ones. The odds and intensity of increase in the stock exchange indices varied from continent to continent. The increase was faster than the initial decline. Full article
(This article belongs to the Special Issue Financial Stability and Systemic Risk in Times of Pandemic)
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15 pages, 1809 KiB  
Article
The Impact of the Crisis Triggered by the COVID-19 Pandemic and the Actions of Regulators on the Consumer Finance Market in Poland and Other European Union Countries
Risks 2021, 9(6), 102; https://doi.org/10.3390/risks9060102 - 01 Jun 2021
Cited by 12 | Viewed by 5962
Abstract
The economic crisis triggered by the COVID-19 outbreak has severely affected the global economy. The ultimate scale of the recession is yet to be determined, but it is likely to be the most dramatic slump since World War II. The impact of the [...] Read more.
The economic crisis triggered by the COVID-19 outbreak has severely affected the global economy. The ultimate scale of the recession is yet to be determined, but it is likely to be the most dramatic slump since World War II. The impact of the crisis on the financial sector, especially consumer finance, could almost instantly be observed. The article shows how determination and consistency in regulatory actions counteracts the effects of the pandemic crisis for the banking sector and consumer finance. The conducted research has shown the existence of a number of social phenomena typical of this type of global crisis, such as shopping panic, reduced creditworthiness of households related to loss of income, unemployment and increased crime. At the same time, the actions of financial market regulators turned out to be very effective (no negative structural phenomena occurred in the financial market). The accuracy of the selection of instruments and the speed of action limited the social and financial effects of the pandemic, including a loan repayment memorandum, limiting the cost of consumer loans and supporting the banking sector, which will limit the scale of excessive household debt and consumer bankruptcies, and companies were also supported. The research was conducted on the basis of available literature on the subject, market analyses and a review of regulations implemented at the central level and in individual EU member states. Full article
(This article belongs to the Special Issue Financial Stability and Systemic Risk in Times of Pandemic)
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13 pages, 987 KiB  
Article
Bitcoin and Altcoins Price Dependency: Resilience and Portfolio Allocation in COVID-19 Outbreak
Risks 2021, 9(4), 74; https://doi.org/10.3390/risks9040074 - 13 Apr 2021
Cited by 17 | Viewed by 5671
Abstract
The main aim of this article is to examine the inter-relationships among the top cryptocurrencies on the crypto stock market in the presence and absence of the COVID-19 pandemic. The nine chosen cryptocurrencies are Bitcoin, Ethereum, Ripple, Litecoin, Eos, BitcoinCash, Binance, Stellar, and [...] Read more.
The main aim of this article is to examine the inter-relationships among the top cryptocurrencies on the crypto stock market in the presence and absence of the COVID-19 pandemic. The nine chosen cryptocurrencies are Bitcoin, Ethereum, Ripple, Litecoin, Eos, BitcoinCash, Binance, Stellar, and Tron and their daily closing price data are captured from coinmarketcap over the period from 13 September 2017 to 21 September 2020. All of the cryptocurrencies are integrated of order 1 i.e., I(1). There is strong evidence of a long-run relationship between Bitcoin and altcoins irrespective of whether it is pre-pandemic or pandemic period. It has also been found that these cryptocurrencies’ prices and their inter-relationship are resilient to the pandemic. It is recommended that when the investors create investment plans and strategies they may highly consider Bitcoin and altcoins jointly as they give sustainability and resilience in the long run against the geopolitical risks and even in the tough time of the COVID-19 pandemic. Full article
(This article belongs to the Special Issue Financial Stability and Systemic Risk in Times of Pandemic)
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19 pages, 961 KiB  
Article
Household’s Overindebtedness during the COVID-19 Crisis: The Role of Debt and Financial Literacy
Risks 2021, 9(4), 62; https://doi.org/10.3390/risks9040062 - 30 Mar 2021
Cited by 35 | Viewed by 6472
Abstract
The COVID-19 pandemic has shown how important it is to prepare one’s own financial budget for the unexpected loss of income. In this dimension, the financial education of the society plays an invaluable role. It allows us to account for events that may [...] Read more.
The COVID-19 pandemic has shown how important it is to prepare one’s own financial budget for the unexpected loss of income. In this dimension, the financial education of the society plays an invaluable role. It allows us to account for events that may adversely affect personal finances in our budget management decisions. Therefore, the aim of the article is to check whether households with a higher level of financial and debt literacy have better management skills from the perspective of a household’s budget, which in the face of a crisis reduces the risk of individuals not paying their liabilities. Thus, at the turn of June and July 2020, we conducted surveys among 1300 Polish citizens. Using the multinomial logistic regression, we show that people with a higher financial and debt literacy are less affected by overindebtedness. During the crisis, people who have a higher debt literacy are better prepared to manage credit liabilities; in this situation, financial literacy is less important. In addition, the type of credit experience turned out to be significant. Respondents who have experience with consumer loans (potentially high-margin products) are more likely to have debt repayment problems than those with mortgage loans experiences. Full article
(This article belongs to the Special Issue Financial Stability and Systemic Risk in Times of Pandemic)
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15 pages, 1003 KiB  
Article
Are Investors’ Attention and Uncertainty Aversion the Risk Factors for Stock Markets? International Evidence from the COVID-19 Crisis
Risks 2021, 9(1), 2; https://doi.org/10.3390/risks9010002 - 22 Dec 2020
Cited by 17 | Viewed by 5448
Abstract
In this paper, we examine the impact of investors’ attention to COVID-19 on stock market returns and the moderating effect of national culture on this relationship. Using daily data from 34 countries over the period 23 January to 12 June 2020, and measuring [...] Read more.
In this paper, we examine the impact of investors’ attention to COVID-19 on stock market returns and the moderating effect of national culture on this relationship. Using daily data from 34 countries over the period 23 January to 12 June 2020, and measuring investors’ attention with the Google search volume (GSV) of the word “coronavirus” for each country, we find that investors’ enhanced attention to the COVID-19 pandemic results in negative stock market returns. Further, measuring the national culture with the uncertainty avoidance index (the aspect of national culture which measures the cross-country differences in decision-making under stress and ambiguity), we find that the negative impact of investors’ attention on stock market returns is stronger in countries where investors possess higher uncertainty avoidance cultural values. Our findings imply that uncertainty avoidance cultural values of investors promote financial market instability amid the crisis. Full article
(This article belongs to the Special Issue Financial Stability and Systemic Risk in Times of Pandemic)
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