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Liquidity Scenario Analysis in the Luxembourg Banking Sector

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  • ?tefan Rychtárik

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    Abstract

    This paper aims to develop the basis for an approach to measure the liquidity risk sensitivity of banks in Luxembourg and to test it on real banking sector data. For this purpose we have developed four different scenarios: run on a bank, use of committed loans by counterparties, netting of the position with the parent financial group and changes in conditions of refinancing operations with the Eurosystem. The impact of all four simulations is measured by relative changes of liquidity ratios that have been introduced for this purpose. In a second step, this methodology is tested on a sample of 32 banks active in the Luxembourg banking sector aiming at identifying the most severe scenario or a combination of scenarios and the most vulnerable banks of the sample.

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    File URL: http://www.bcl.lu/fr/publications/cahiers_etudes/41/BCLWP041.pdf
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    Bibliographic Info

    Paper provided by Central Bank of Luxembourg in its series BCL working papers with number 41.

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    Length: 56 pages
    Date of creation: Sep 2009
    Date of revision:
    Handle: RePEc:bcl:bclwop:bclwp041

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    Web page: http://www.bcl.lu/

    Related research

    Keywords: Liquidity risk; Scenario analysis; Banking sector; Stress testing;

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    References

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    1. Petr Jakubík & Jaroslav Heřmánek, 2008. "Stress testing of the czech banking sector," Prague Economic Papers, University of Economics, Prague, vol. 2008(3), pages 195-212.
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    Cited by:
    1. Franco Stragiotti, 2009. "Stress testing and contingency funding plans: an analysis of current practices in the Luxembourg banking sector," BCL working papers 42, Central Bank of Luxembourg.

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