Advanced Search
MyIDEAS: Login to save this paper or follow this series

Market and Funding Liquidity Stress Testing of the Luxembourg Banking Sector

Contents:

Author Info

  • Francisco Nadal De Simone

    ()

  • Franco Stragiotti

    ()

Abstract

This paper performs market and funding liquidity stress testing of the Luxembourg banking sector using stochastic haircuts and run-off rates. It takes into account not only the shocks to the banking sector and banks? responses to them, but second-round effects due to the effects of banks? reactions on asset prices and reputation. In general, banks? business lines and, therefore their buffers? composition, determine the net effect of the shocks on banks? stochastic liquidity buffers. So, results differ across banks. Second-round effects exemplify the relevance of contagion effects that reduce the systemic benefits of diversification. While systemic liquidity risk is low following a shock to the interbank market, for Luxembourg, with its high number of subsidiaries of large foreign financial institutions, the results indicate the importance of monitoring the liquidity of parent groups to which Luxembourg institutions belong. In particular, shocks to related-party deposits are important. Finally, the results, including those of a run-on-deposits shock, show the relevance of system-wide measures to minimize the systemic effects of liquidity crises.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.bcl.lu/fr/publications/cahiers_etudes/45/BCLWP045.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Central Bank of Luxembourg in its series BCL working papers with number 45.

as in new window
Length: 38 pages
Date of creation: May 2010
Date of revision:
Handle: RePEc:bcl:bclwop:bclwp045

Contact details of provider:
Web page: http://www.bcl.lu/

Related research

Keywords: stress test; liquidity risk; banks; stochastic; contagion; macro-prudential;

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Eisenschmidt, Jens & Tapking, Jens, 2009. "Liquidity risk premia in unsecured interbank money markets," Working Paper Series 1025, European Central Bank.
  2. Charles Goodhart & Pojanart Sunirand & Dimitrios P. Tsomocos, 2004. "A model to analyse financial fragility," LSE Research Online Documents on Economics 24703, London School of Economics and Political Science, LSE Library.
  3. Jan Willem van den End, 2010. "Liquidity Stress-Tester: A Model for Stress-testing Banks' Liquidity Risk," CESifo Economic Studies, CESifo, vol. 56(1), pages 38-69, March.
  4. Markus K. Brunnermeier & Lasse Heje Pedersen, 2007. "Market Liquidity and Funding Liquidity," NBER Working Papers 12939, National Bureau of Economic Research, Inc.
  5. Upper, Christian, 2011. "Simulation methods to assess the danger of contagion in interbank markets," Journal of Financial Stability, Elsevier, vol. 7(3), pages 111-125, August.
  6. Viral V. Acharya & Douglas Gale & Tanju Yorulmazer, 2010. "Rollover Risk and Market Freezes," NBER Working Papers 15674, National Bureau of Economic Research, Inc.
  7. Rafael Repullo, 2005. "Liquidity, Risk Taking, and the Lender of Last Resort," International Journal of Central Banking, International Journal of Central Banking, vol. 1(2), September.
  8. Heider, Florian & Hoerova, Marie & Holthausen, Cornelia, 2009. "Liquidity hoarding and interbank market spreads: the role of counterparty risk," Working Paper Series 1126, European Central Bank.
  9. Nier, Erlend & Yang, Jing & Yorulmazer, Tanju & Alentorn, Amadeo, 2007. "Network models and financial stability," Journal of Economic Dynamics and Control, Elsevier, vol. 31(6), pages 2033-2060, June.
  10. Cetorelli, Nicola & Goldberg, Linda S., 2008. "Banking globalization, monetary transmission and the lending channel," Discussion Paper Series 1: Economic Studies 2008,21, Deutsche Bundesbank, Research Centre.
  11. Jens H. E. Christensen & Jose A. Lopez & Glenn D. Rudebusch, 2009. "Do central bank liquidity facilities affect interbank lending rates?," Working Paper Series 2009-13, Federal Reserve Bank of San Francisco.
  12. 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.
  13. Michael Boss & Gerald Krenn & Claus Puhr & Martin Summer, 2006. "Systemic Risk Monitor: A Model for Systemic Risk Analysis and Stress Testing of Banking Systems," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 11.
  14. Mark Swinburne & Stéphanie Marie Stolz & Marina Moretti, 2008. "Stress Testing At the IMF," IMF Working Papers 08/206, International Monetary Fund.
  15. Tobias Adrian & Hyun Song Shin, 2008. "Liquidity and financial cycles," BIS Working Papers 256, Bank for International Settlements.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Panetta, Fabio & Correa, Ricardo & Davies, Michael & Di Cesare, Antonio & Marques, José-Manuel & Nadal de Simone, Francisco & Signoretti, Federico & Vespro, Cristina & Vildo, Siret & Wieland, Martin , 2011. "The impact of sovereign credit risk on bank funding conditions," MPRA Paper 32581, University Library of Munich, Germany.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:bcl:bclwop:bclwp045. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.