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Measuring systemic funding liquidity risk in the Russian banking system

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  • Andrievskaya, Irina

    ()
    (BOFIT)

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    Abstract

    The 2007-2009 global financial crisis demonstrated the need for effective systemic risk measurement and regulation. This paper proposes a straightforward approach for estimating the systemic funding liquidity risk in a banking system and identifying systemically critical banks. Focusing on the surplus of highly liquid assets above due payments, we find systemic funding liquidity risk can be expressed as the distance of the aggregate liquidity surplus from its current level to its critical value. Calculations are performed using simulated distribution of the aggregate liquidity surplus determined using Independent Component Analysis. The systemic importance of banks is then assessed based on their contribution to variation of the liquidity surplus in the system. We apply this methodology to the case of Russia, an emerging economy, to identify the current level of systemic funding liquidity risk and rank banks based on their systemic relevance.

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    File URL: http://www.suomenpankki.fi/bofit/tutkimus/tutkimusjulkaisut/dp/Documents/2012/dp1212.pdf
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    Bibliographic Info

    Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 12/2012.

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    Length: 29 pages
    Date of creation: 18 Jun 2012
    Date of revision:
    Handle: RePEc:hhs:bofitp:2012_012

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    Postal: Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland
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    Fax: + 358 10 831 2294
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    Web page: http://www.suomenpankki.fi/bofit_en/
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    Keywords: systemic risk; liquidity surplus; banking; Russia;

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    1. Chen Zhou, 2010. "Are Banks Too Big to Fail? Measuring Systemic Importance of Financial Institutions," International Journal of Central Banking, International Journal of Central Banking, vol. 6(34), pages 205-250, December.
    2. Germán López-Espinosa & Antonio Moreno & Antonio Rubia & Laura Valderrama, 2012. "Short-term Wholesale Funding and Systemic Risk: A Global CoVaR Approach," Faculty Working Papers 02/12, School of Economics and Business Administration, University of Navarra.
    3. Aikman, David & Alessandri, Piergiorgio & Eklund, Bruno & Gai, Prasanna & Kapadia, Sujit & Martin, Elizabeth & Mora, Nada & Sterne, Gabriel & Willison, Matthew, 2009. "Funding liquidity risk in a quantitative model of systemic stability," Bank of England working papers 372, Bank of England.
    4. Morten Bech & James T. E. Chapman & Rod Garratt, 2008. "Which Bank is the "Central" Bank? An Application of Markov Theory to the Canadian Large Value Transfer System," Working Papers 08-42, Bank of Canada.
    5. Iori, Giulia & Jafarey, Saqib & Padilla, Francisco G., 2006. "Systemic risk on the interbank market," Journal of Economic Behavior & Organization, Elsevier, vol. 61(4), pages 525-542, December.
    6. Lehar, Alfred, 2005. "Measuring systemic risk: A risk management approach," Journal of Banking & Finance, Elsevier, vol. 29(10), pages 2577-2603, October.
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