Spillover risk

Financial services regulation - supervision - risk - markets - contagion - financial stability.

Spillover risk is the risk of negative effects in a country or market, resulting from adverse events in a different country or market, especially when the linkages between the countries or markets appeared to be relatively remote (before the occurrence of the spillover).

Spillover is similar to contagion, and overlaps with it substantially.

However, contagion can arguably be viewed as being relatively more predictable on the whole, with spillover perhaps being relatively less predictable, and therefore even more important to understand and protect against.

Spillover channels from non bank financial intermediary (NBFI) sector to banks

"Banks are connected to non-bank financial intermediation (NBFI) sector entities via loans, securities and derivatives exposures, as well as funding dependencies.

Linkages with the NBFI sector expose banks to liquidity, market and credit risks. Funding from NBFI entities would appear to be the most likely and strongest spillover channel, given that NBFI entities maintain their liquidity buffers primarily as deposits and very short-term repo transactions with banks.

Key linkages between banks and the non-bank financial sector - European Central Bank (ECB) - May 2023.

See also

• Bank
• Capital adequacy
• Capital buffer
• Contagion
• Credit
• Credit risk
• European Systemic Risk Board (ESRB)
• European Central Bank (ECB)
• Exposure
• Financial intermediary
• Financial stability
• Financial Stability Board (FSB)
• Governance
• Leverage
• Liquidity
• Liquidity buffer
• Liquidity risk
• Liquidity transformation
• Market risk
• Maturity transformation
• Negative externality
• Non-bank financial intermediaries (NBFIs)
• Pension fund
• Prudential
• Prudential regulation
• Real economy
• Red tape
• Regime
• Regulation
• Repo
• Risk
• Risk management
• Risk transmission
• Security
• Stress
• Supervisor
• Systemic risk
• Systemically Important Bank (SIB)

Other resource

• Key linkages between banks and the non-bank financial sector - European Central Bank (ECB) - May 2023