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Liquidity Risk Monitoring Framework: A Supervisory Tool

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  • ?tefan Rychtárik

    ()

  • Franco Stragiotti

    ()

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    Abstract

    Over the last 12 months, the supervision of liquidity has become one of the most discussed issues by the central banks and the financial market authorities. The objective of this paper is to describe the off-site liquidity monitoring framework recently implemented as one of the supervisory tools of the Banque centrale du Luxembourg. In our approach, the liquidity position of every bank is described by two different scores that take into account the bank?s liquidity position across ?peer? banks as well as over time. The framework has three major outputs. First of all, it helps supervisors to identify banks with weaker liquidity positions. Secondly, the scores can be decomposed among 21 risk factors. Finally, the framework creates a basis to draw conclusions about the general trends within the Luxembourg banking sector for the purpose of ensuring financial stability. Unlike common supervisory scoring systems generally based on banks? balance sheet and profit and loss data, our framework integrates on- and off-balance sheet data and general and idiosyncratic market data as well as macroeconomic data.

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    File URL: http://www.bcl.lu/fr/publications/cahiers_etudes/43/BCLWP043.pdf
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    Bibliographic Info

    Paper provided by Central Bank of Luxembourg in its series BCL working papers with number 43.

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    Length: 48 pages
    Date of creation: Dec 2009
    Date of revision:
    Handle: RePEc:bcl:bclwop:bclwp043

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

    Related research

    Keywords: Liquidity risk; Stress-test; Banking sector; Prudential supervision; Scoring system; Off-site supervision;

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    References

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    1. Alejandro Gaytán & Christian A. Johnson, 2002. "A Review of the Literature on Early Warning Systems for Banking Crises," Working Papers Central Bank of Chile 183, Central Bank of Chile.
    2. Jens Eisenschmidt & Jens Tapking, 2009. "Liquidity risk premia in unsecured interbank money markets," Working Paper Series 1025, European Central Bank.
    3. Gelper, Sarah & Croux, Christophe, 2007. "The predictive power of the European Economic Sentiment Indicator," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/120562, Katholieke Universiteit Leuven.
    4. Eric Santor, 2003. "Banking Crises and Contagion: Empirical Evidence," Working Papers 03-1, Bank of Canada.
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    Cited by:
    1. Claudia Curi & Paolo Guarda & Ana Lozano-Vivas & Valentin Zelenyuk, 2011. "Is foreign-bank efficiency in financial centers driven by homecountry characteristics?," BCL working papers 68, Central Bank of Luxembourg.

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