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Understanding and measuring liquidity risk

Author

Listed:
  • Andrea Resti

    (Università Bocconi, Milano)

  • Andrea Sironi

    (Università Bocconi, Milano)

Abstract

The liquidity risk is one of the drivers of uncertainty in the banking activities. It could worsen the impact of shocks caused by market instability or temporary lack of customers’ confidence with possible serious consequences on the stability of financial intermediaries, as shown by the events of summer 2007. Today available methodologies for studying this type of risk are not well developed. This lack of certified models exposes to the risk that measures created by banks could give wrong signals to the top management because they are constructed on hypothesis not coherent with the behavior of markets and counterparties in an extreme event scenario

Suggested Citation

  • Andrea Resti & Andrea Sironi, 2007. "Understanding and measuring liquidity risk," BANCARIA, Bancaria Editrice, vol. 11, pages 2-17, November.
    • Handle: RePEc:ban:bancar:v:11:y:2007:m:november:p:2-17
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    File URL: http://www.bancariaeditrice.it/prodotti/vedi/prodotto/id/2017/bancaria-n-11-2007
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    More about this item

    Keywords

    Liquidity risk; founding risk; market liquidity risk; stress test;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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