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Measuring Systemic Liquidity Risk And The Cost Of Liquidity Insurance
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Book Synopsis Measuring Systemic Liquidity Risk and the Cost of Liquidity Insurance by : Tiago Severo
Download or read book Measuring Systemic Liquidity Risk and the Cost of Liquidity Insurance written by Tiago Severo and published by International Monetary Fund. This book was released on 2012-07-01 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: I construct a systemic liquidity risk index (SLRI) from data on violations of arbitrage relationships across several asset classes between 2004 and 2010. Then I test whether the equity returns of 53 global banks were exposed to this liquidity risk factor. Results show that the level of bank returns is not directly affected by the SLRI, but their volatility increases when liquidity conditions deteriorate. I do not find a strong association between bank size and exposure to the SLRI - measured as the sensitivity of volatility to the index. Surprisingly, exposure to systemic liquidity risk is positively associated with the Net Stable Funding Ratio (NSFR). The link between equity volatility and the SLRI allows me to calculate the cost that would be borne by public authorities for providing liquidity support to the financial sector. I use this information to estimate a liquidity insurance premium that could be paid by individual banks in order to cover for that social cost.
Book Synopsis Measuring Systemic Risk-Adjusted Liquidity (SRL) by : Andreas Jobst
Download or read book Measuring Systemic Risk-Adjusted Liquidity (SRL) written by Andreas Jobst and published by International Monetary Fund. This book was released on 2012-08-01 with total page 70 pages. Available in PDF, EPUB and Kindle. Book excerpt: Little progress has been made so far in addressing—in a comprehensive way—the externalities caused by impact of the interconnectedness within institutions and markets on funding and market liquidity risk within financial systems. The Systemic Risk-adjusted Liquidity (SRL) model combines option pricing with market information and balance sheet data to generate a probabilistic measure of the frequency and severity of multiple entities experiencing a joint liquidity event. It links a firm’s maturity mismatch between assets and liabilities impacting the stability of its funding with those characteristics of other firms, subject to individual changes in risk profiles and common changes in market conditions. This approach can then be used (i) to quantify an individual institution’s time-varying contribution to system-wide liquidity shortfalls and (ii) to price liquidity risk within a macroprudential framework that, if used to motivate a capital charge or insurance premia, provides incentives for liquidity managers to internalize the systemic risk of their decisions. The model can also accommodate a stress testing approach for institution-specific and/or general funding shocks that generate estimates of systemic liquidity risk (and associated charges) under adverse scenarios.
Book Synopsis Liquidity Risk Measurement and Management by : Leonard Matz
Download or read book Liquidity Risk Measurement and Management written by Leonard Matz and published by Xlibris Corporation. This book was released on 2011-07-20 with total page 400 pages. Available in PDF, EPUB and Kindle. Book excerpt: Villains for the Great Meltdown of 2007-2008 seem plentiful. But the very concept of finding and punishing villains misses the target. Ideally, we learn from past failures. We perfect our craft. Lessons to be learned from the Great Meltdown are not just plentiful - they are also insightful. In LIQUIDITY RISK MEASUREMENT AND MANAGENT -- BASEL III AND BEYOND, Mr. Matz provides detailed, practical analysis and recommendations covering every aspect of liquidity risk measurement and management. * Examples of what went wrong are used extensively. * Best practices procedures are explained. * New regulatory guidance - both qualitative and quantitative, including Basel III - is discussed in detail.* Source material and examples from many countries are included.This is the "how to guide" for liquidity risk managers in financial institutions around the globe.
Book Synopsis Measuring Systemic Risk-Adjusted Liquidity (SRL) by : Andreas (Andy) Jobst
Download or read book Measuring Systemic Risk-Adjusted Liquidity (SRL) written by Andreas (Andy) Jobst and published by . This book was released on 2013 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: Little progress has been made so far in addressing -- in a comprehensive way -- the externalities caused by impact of the interconnectedness within institutions and markets on funding and market liquidity risk within financial systems. The Systemic Risk-adjusted Liquidity (SRL) model combines option pricing with market information and balance sheet data to generate a probabilistic measure of the frequency and severity of multiple entities experiencing a joint liquidity event. It links a firm's maturity mismatch between assets and liabilities impacting the stability of its funding with those characteristics of other firms, subject to individual changes in risk profiles and common changes in market conditions. This approach can then be used (i) to quantify an individual institution's time-varying contribution to system-wide liquidity shortfalls and (ii) to price liquidity risk within a macroprudential framework that, if used to motivate a capital charge or insurance premia, provides incentives for liquidity managers to internalize the systemic risk of their decisions. The model can also accommodate a stress testing approach for institution-specific and/or general funding shocks that generate estimates of systemic liquidity risk (and associated charges) under adverse scenarios.
Book Synopsis Measuring and Managing Liquidity Risk by : Antonio Castagna
Download or read book Measuring and Managing Liquidity Risk written by Antonio Castagna and published by John Wiley & Sons. This book was released on 2013-09-03 with total page 600 pages. Available in PDF, EPUB and Kindle. Book excerpt: A fully up-to-date, cutting-edge guide to the measurement and management of liquidity risk Written for front and middle office risk management and quantitative practitioners, this book provides the ground-level knowledge, tools, and techniques for effective liquidity risk management. Highly practical, though thoroughly grounded in theory, the book begins with the basics of liquidity risks and, using examples pulled from the recent financial crisis, how they manifest themselves in financial institutions. The book then goes on to look at tools which can be used to measure liquidity risk, discussing risk monitoring and the different models used, notably financial variables models, credit variables models, and behavioural variables models, and then at managing these risks. As well as looking at the tools necessary for effective measurement and management, the book also looks at and discusses current regulation and the implication of new Basel regulations on management procedures and tools.
Book Synopsis Measuring System Risk-adjusted Liquidity (SRL) by : Andreas Jobst
Download or read book Measuring System Risk-adjusted Liquidity (SRL) written by Andreas Jobst and published by . This book was released on 2012 with total page 69 pages. Available in PDF, EPUB and Kindle. Book excerpt: Little progress has been made so far in addressing--in a comprehensive way--the externalities caused by impact of the interconnectedness within institutions and markets on funding and market liquidity risk within financial systems. The Systemic Risk-adjusted Liquidity (SRL) model combines option pricing with market information and balance sheet data to generate a probabilistic measure of the frequency and severity of multiple entities experiencing a joint liquidity event. It links a firm's maturity mismatch between assets and liabilities impacting the stability of its funding with those characteristics of other firms, subject to individual changes in risk profiles and common changes in market conditions. This approach can then be used (i) to quantify an individual institution's time-varying contribution to system-wide liquidity shortfalls and (ii) to price liquidity risk within a macroprudential framework that, if used to motivate a capital charge or insurance premia, provides incentives for liquidity managers to internalize the systemic risk of their decisions. The model can also accommodate a stress testing approach for institution-specific and/or general funding shocks that generate estimates of systemic liquidity risk (and associated charges) under adverse scenarios.
Book Synopsis Liquidity Risk Measurement and Management by : Leonard Matz
Download or read book Liquidity Risk Measurement and Management written by Leonard Matz and published by John Wiley & Sons. This book was released on 2006-11-10 with total page 413 pages. Available in PDF, EPUB and Kindle. Book excerpt: Major events such as the Asian crisis in 1997, the Russian default on short-term debt in 1998, the downfall of the hedge fund long-term capital management in 1998 and the disruption in payment systems following the World Trade Center attack in 2001, all resulted in increased management’s attention to liquidity risk. Banks have realized that adequate systems and processes for identifying, measuring, monitoring and controlling liquidity risks help them to maintain a strong liquidity position, which in turn will increase the confidence of investors and rating agencies as well as improve funding costs and availability. Liquidity Risk Measurement and Management: A Practitioner’s Guide to Global Best Practices provides the best practices in tools and techniques for bank liquidity risk measurement and management. Experienced bankers and highly regarded liquidity risk experts share their insights and practical experiences in this book.
Book Synopsis Liquidity Risk Management by : Leonard M. Matz
Download or read book Liquidity Risk Management written by Leonard M. Matz and published by Sheshunoff. This book was released on 1999 with total page 746 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Risk Topography by : Markus Brunnermeier
Download or read book Risk Topography written by Markus Brunnermeier and published by University of Chicago Press. This book was released on 2014-10-17 with total page 286 pages. Available in PDF, EPUB and Kindle. Book excerpt: The recent financial crisis and the difficulty of using mainstream macroeconomic models to accurately monitor and assess systemic risk have stimulated new analyses of how we measure economic activity and the development of more sophisticated models in which the financial sector plays a greater role. Markus Brunnermeier and Arvind Krishnamurthy have assembled contributions from leading academic researchers, central bankers, and other financial-market experts to explore the possibilities for advancing macroeconomic modeling in order to achieve more accurate economic measurement. Essays in this volume focus on the development of models capable of highlighting the vulnerabilities that leave the economy susceptible to adverse feedback loops and liquidity spirals. While these types of vulnerabilities have often been identified, they have not been consistently measured. In a financial world of increasing complexity and uncertainty, this volume is an invaluable resource for policymakers working to improve current measurement systems and for academics concerned with conceptualizing effective measurement.
Book Synopsis Systemic Liquidity Concept, Measurement and Macroprudential Instruments by :
Download or read book Systemic Liquidity Concept, Measurement and Macroprudential Instruments written by and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study provides a conceptual and monitoring framework for systemic liquidity, as well as a legal assessment of the possible use of macroprudential liquidity tools in the European Union. It complements previous work on liquidity and focuses on the development of liquidity risk at the system-wide level. A dashboard with a total of 20 indicators is developed for the financial system, including banks and non-banks, to assess the build-up of systemic liquidity risk over time. In addition to examining liquidity risks, this study sheds light on the legal basis for additional macroprudential liquidity tools under existing regulation (Article 458 of the Capital Requirements Regulation (CRR), Articles 105 and 103 of the Capital Requirements Directive (CRD IV) and national law), which is a key condition for the implementation of macroprudential liquidity tools.
Book Synopsis Measuring Liquidity in Financial Markets by : Abdourahmane Sarr
Download or read book Measuring Liquidity in Financial Markets written by Abdourahmane Sarr and published by International Monetary Fund. This book was released on 2002-12 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides an overview of indicators that can be used to illustrate and analyze liquidity developments in financial markets. The measures include bid-ask spreads, turnover ratios, and price impact measures. They gauge different aspects of market liquidity, namely tightness (costs), immediacy, depth, breadth, and resiliency. These measures are applied in selected foreign exchange, money, and capital markets to illustrate their operational usefulness. A number of measures must be considered because there is no single theoretically correct and universally accepted measure to determine a market's degree of liquidity and because market-specific factors and peculiarities must be considered.
Book Synopsis Systemic Contingent Claims Analysis by : Mr.Andreas A. Jobst
Download or read book Systemic Contingent Claims Analysis written by Mr.Andreas A. Jobst and published by International Monetary Fund. This book was released on 2013-02-27 with total page 93 pages. Available in PDF, EPUB and Kindle. Book excerpt: The recent global financial crisis has forced a re-examination of risk transmission in the financial sector and how it affects financial stability. Current macroprudential policy and surveillance (MPS) efforts are aimed establishing a regulatory framework that helps mitigate the risk from systemic linkages with a view towards enhancing the resilience of the financial sector. This paper presents a forward-looking framework ("Systemic CCA") to measure systemic solvency risk based on market-implied expected losses of financial institutions with practical applications for the financial sector risk management and the system-wide capital assessment in top-down stress testing. The suggested approach uses advanced contingent claims analysis (CCA) to generate aggregate estimates of the joint default risk of multiple institutions as a conditional tail expectation using multivariate extreme value theory (EVT). In addition, the framework also helps quantify the individual contributions to systemic risk and contingent liabilities of the financial sector during times of stress.
Book Synopsis Quantifying Systemic Risk by : Joseph G. Haubrich
Download or read book Quantifying Systemic Risk written by Joseph G. Haubrich and published by University of Chicago Press. This book was released on 2013-01-24 with total page 286 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the aftermath of the recent financial crisis, the federal government has pursued significant regulatory reforms, including proposals to measure and monitor systemic risk. However, there is much debate about how this might be accomplished quantitatively and objectively—or whether this is even possible. A key issue is determining the appropriate trade-offs between risk and reward from a policy and social welfare perspective given the potential negative impact of crises. One of the first books to address the challenges of measuring statistical risk from a system-wide persepective, Quantifying Systemic Risk looks at the means of measuring systemic risk and explores alternative approaches. Among the topics discussed are the challenges of tying regulations to specific quantitative measures, the effects of learning and adaptation on the evolution of the market, and the distinction between the shocks that start a crisis and the mechanisms that enable it to grow.
Book Synopsis Bank Size and Systemic Risk by : Mr.Luc Laeven
Download or read book Bank Size and Systemic Risk written by Mr.Luc Laeven and published by International Monetary Fund. This book was released on 2014-05-08 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: The proposed SDN documents the evolution of bank size and activities over the past 20 years. It discusses whether this evolution can be explained by economies of scale or “too big to fail” subsidies. The paper then presents evidence on the extent to which bank size and market-based activities contribute to systemic risk. The paper concludes with policy messages in the area of capital regulation and activity restrictions to reduce the systemic risk posed by large banks. The analysis of the paper complements earlier Fund work, including SDN 13/04 and the recent GFSR chapter on “too big to fail” subsidies, and its policy message is in line with this earlier work.
Book Synopsis Short-Term Wholesale Funding and Systemic Risk by : International Monetary Fund
Download or read book Short-Term Wholesale Funding and Systemic Risk written by International Monetary Fund and published by International Monetary Fund. This book was released on 2012-02-01 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we identify some of the main factors behind systemic risk in a set of international large-scale complex banks using the novel CoVaR approach. We find that short-term wholesale funding is a key determinant in triggering systemic risk episodes. In contrast, we find no evidence that a larger size increases systemic risk within the class of large global banks. We also show that the sensitivity of system-wide risk to an individual bank is asymmetric across episodes of positive and negative asset returns. Since short-term wholesale funding emerges as the most relevant systemic factor, our results support the Basel Committee's proposal to introduce a net stable funding ratio, penalizing excessive exposure to liquidity risk.
Book Synopsis International Convergence of Capital Measurement and Capital Standards by :
Download or read book International Convergence of Capital Measurement and Capital Standards written by and published by Lulu.com. This book was released on 2004 with total page 294 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Net Stable Funding Ratio by : Jeanne Gobat
Download or read book The Net Stable Funding Ratio written by Jeanne Gobat and published by International Monetary Fund. This book was released on 2014-06-12 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: As part of Basel III reforms, the NSFR is a new prudential liquidity rule aimed at limiting excess maturity transformation risk in the banking sector and promoting funding stability. The revised package has been issued for public consultation with a plan of making the rule binding in 2018. This paper complements earlier quantitative impact studies by discussing the potential impact of introducing the NSFR based on empirical analysis of end-2012 financial data for over 2000 banks covering 128 countries. The calculations show that a sizeable percentage of the banks in most countries would meet the minimum NSFR prudential requirement at end-2012, and, further, that larger banks tend to be more vulnerable to the introduction of the NSFR. Additionally, by comparing the NSFR to other structural funding mismatch indicators, we find that the NSFR is a relatively consistent regulatory measure for capturing banks’ funding risk. Finally, the paper discusses key policy issues for consideration in implementing the NSFR.
