Sudden stop of capital flows and the consequences for the banking sector and the real economy
The paper develops a macro-prudential liquidity stress-testing tool in order to capture the possible consequences of a capital outflow (including a run of deposits). The tool includes a feedback from the banking sector to the real economy, incorporates a link between liquidity risk and solvency risk, and is tailored for emerging market features. The stress-testing tool aims to: (i) test the capacity of the banking sector to withstand the sudden stop of capital flows, and to gauge the consequences of the liquidity stress to the solvency ratio; (ii) quantify the liquidity deficit that a central bank should accommodate; (iii) assess the impact on credit supply when the sudden stop occurs; and (iv) support the implementation of an orderly disintermediation process. The macro-prudential tool is applied on the Romanian banking sector. JEL Classification: G21, F32
|Date of creation:||Sep 2013|
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- Jan Willem van den End, 2012.
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- Kartik Anand & Prasanna Gai & Sujit Kapadia & Simon Brennan & Matthew Willison, 2011.
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SFB 649 Discussion Papers
SFB649DP2011-051, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Diamond, Douglas W & Dybvig, Philip H, 1983.
"Bank Runs, Deposit Insurance, and Liquidity,"
Journal of Political Economy,
University of Chicago Press, vol. 91(3), pages 401-19, June.
- Costeiu, Adrian & Neagu, Florian, 2013. "Bridging the banking sector with the real economy: a financial stability perspective," Working Paper Series 1592, European Central Bank.
- Franklin Allen & Douglas Gale, 2000.
Journal of Political Economy,
University of Chicago Press, vol. 108(1), pages 1-33, February.
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