Estimating financial institutions’ intraday liquidity risk: a Monte Carlo simulation approach
The most recent financial crisis unveiled that liquidity risk is far more important and intricate than regulation have conceived. The shift from bank-based to market-based financial systems and from Deferred Net Systems to liquidity-demanding Real-Time Gross Settlement of payments explains some of the shortcomings of traditional liquidity risk management. Although liquidity regulations do exist, they still are in an early stage of development and discussion. Moreover, no all connotations of liquidity are equally addressed. Unlike market and funding liquidity, intraday liquidity has been absent from financial regulation, and has appeared only recently, after the crisis. This paper addresses the measurement of Large-Value Payment System’s intraday liquidity risk. Based on the generation of bivariate Poisson random numbers for simulating the minute-by-minute arrival of received and executed payments, each financial institution’s intraday payments time-varying volume and degree of synchrony (i.e. timing) is modeled. To model intraday payments’ uncertainty allows for (i) overseeing participants’ intraday behavior; (ii) assessing their ability to fulfill intraday payments at a certain confidence level; (iii) identifying participants non-resilient to changes in payments’ timing mismatches; (iv) estimating intraday liquidity buffers. Vis-à-vis the increasing importance of liquidity risk as a source of systemic risk, and the recent regulatory amendments, results are useful for financial authorities and institutions.
|Date of creation:||Apr 2012|
|Date of revision:|
|Contact details of provider:|| Postal: Cra 7 # 14-78 Semi-sótano|
Phone: (57-1) 3431111
Fax: (57-1) 2841686
Web page: http://www.banrep.gov.co/es/publicaciones-buscador/23
More information through EDIRC
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.:
- Clara Lía Machado & Carlos León & Miguel Sarmiento & Freddy Cepeda & Orlando Chipatecua & Jorge cely, .
"Riesgo Sistémico y Estabilidad del Sistema de Pagos de Alto Valor en Colombia: Análisis bajo Topología de Redes y Simulación de Pagos,"
Borradores de Economia
627, Banco de la Republica de Colombia.
- Clara Machado & Carlos León & Miguel Sarmiento & Freddy Cepeda, 2011. "Riesgo Sistémico Y Estabilidad Del Sistema De Pagos De Alto Valor En Colombia: Análisis Bajo Topología De Redes Y Simulación De Pagos," ENSAYOS SOBRE POLÍTICA ECONÓMICA, BANCO DE LA REPÚBLICA - ESPE, vol. 29(65), pages 106-175, June.
- Clara Lia Machado & Carlos León & Miguel Sarmiento & Orlando Chipatecua, 2010. "Riesgo Sistémico y Estabilidad del Sistema de Pagos de Alto Valor en Colombia: Análisis bajo Topología de Redes y Simulación de Pagos," BORRADORES DE ECONOMIA 007669, BANCO DE LA REPÚBLICA.
- Morten L. Bech, 2008. "Intraday liquidity management: a tale of games banks play," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 7-23.
- Carlos León & Clara Machado & Freddy cepeda & Miguel Sarmiento, 2011.
"Too-connected-to-fail Institutions and Payments System´s Stability: Assessing Challenges for Financial Authorities,"
BORRADORES DE ECONOMIA
008155, BANCO DE LA REPÚBLICA.
- Carlos Léon & Clara Machado & Freddy Cepeda & Miguel Sarmiento, . "Too-connected-to-fail Institutions and Payments System’s Stability: Assessing Challenges for Financial Authorities," Borradores de Economia 644, Banco de la Republica de Colombia.
- Carlos León Rincón & Alejandro Reveiz, 2011.
"Montecarlo simulation of long-term dependent processes: a primer,"
BORRADORES DE ECONOMIA
008277, BANCO DE LA REPÚBLICA.
- Carlos Leóm & Alejandro Reveiz, . "Montecarlo simulation of long-term dependent processes: a primer," Borradores de Economia 648, Banco de la Republica de Colombia.
- Kenneth French & Martin Baily & John Campbell & John Cochrane & Douglas Diamond & Darrell Duffie & Anil Kashyap & Frederic Mishkin & Raghuram Rajan & David Scharfstein & Robert Shiller & Hyun Song Shi, 2010. "The Squam Lake Report: Fixing the Financial System," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(3), pages 8-21.
When requesting a correction, please mention this item's handle: RePEc:bdr:borrec:703. 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: (Clorith Angélica Bahos Olivera)
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.