Models for Stress Testing Czech Banks' Liquidity Risk
We provide a macro stress-testing model for banks' market and funding liquidity risks with a survival period of one and three months. The model takes into account the impact of both bank-specific and market-wide scenarios and considers both the first- and second-round effects of shocks. The testing model has three phases; (i) the formation of a balance-sheet liquidity shortfall, (ii) the reaction by banks, and (iii) the feedback effects of shocks. During each phase we re-count the liquidity buffer and examine whether banks hold a sufficiently large amount of liquid assets to be able to survive the liquidity tension in their balance sheets. An application to Czech banks illustrates which bank business models are sensitive to liquidity tensions. Overall, we confirm that the Czech banking system is resilient to a scenario mimicking the international liquidity crisis of 2008-2009.
|Date of creation:||Nov 2011|
|Date of revision:|
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- David Aikman & Piergiorgio Alessandri & Bruno Eklund & Prasanna Gai & Sujit Kapadia & Elizabeth Martin & Nada Mora & Gabriel Sterne & Matthew Willison, 2009.
"Funding Liquidity Risk in a Quantitative Model of Systemic Stability,"
Working Papers Central Bank of Chile
555, Central Bank of Chile.
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- 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.
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"Network models and financial stability,"
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Elsevier, vol. 31(6), pages 2033-2060, June.
- Nada Mora, 2010. "Can banks provide liquidity in a financial crisis?," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 31-67.
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