System stress testing of bank liquidity risk

Pagratis, Spyros and Topaloglou, Nikolas and Tsionas, Mike (2017) System stress testing of bank liquidity risk. Journal of International Money and Finance, 73 (Part A). pp. 22-40. ISSN 0261-5606

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Abstract

Abstract Using a stress test methodology for bank liquidity risk we estimate the aggregate liquidity shortfall in the U.S. commercial banking system at the height of 2007–09 crisis, identifying key sources of funding vulnerabilities and the dominant composition of liquid asset holdings against liquidity shocks. The largest liquidity shocks to the system are estimated in the first half of the crisis, in line with Acharya and Mora (2015). Large banks experience the largest liquidity shortfall in 2008:Q1 ($154 billion or 14% of total assets) and small banks in 2007:Q4 ($117 billion or 11% of total assets). The dominant funding vulnerability to the system stems from large time deposits, while government securities largely dominate other classes of liquid assets as liquidity backstop. The analysis draws on detailed bank-level data on balance sheet flows of funds and applies stochastic dominance efficiency methods to capture liquidity risk diversification effects across assets and liabilities.

Item Type:
Journal Article
Journal or Publication Title:
Journal of International Money and Finance
Additional Information:
This is the author’s version of a work that was accepted for publication in Journal of International Money and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of International Money and Finance, 73, Part A, 2017 DOI: 10.1016/j.jimonfin.2017.02.001
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2000/2002
Subjects:
ID Code:
84852
Deposited By:
Deposited On:
27 Feb 2017 13:16
Refereed?:
Yes
Published?:
Published
Last Modified:
29 Nov 2020 04:20