Liquidity Risk Monitoring Framework: A Supervisory Tool
AbstractOver 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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Bibliographic InfoPaper provided by Central Bank of Luxembourg in its series BCL working papers with number 43.
Length: 48 pages
Date of creation: Dec 2009
Date of revision:
Contact details of provider:
Web page: http://www.bcl.lu/
Liquidity risk; Stress-test; Banking sector; Prudential supervision; Scoring system; Off-site supervision;
Find related papers by JEL classification:
- G01 - Financial Economics - - General - - - Financial Crises
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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