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
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- Franklin Allen & Douglas Gale, 2000.
Journal of Political Economy,
University of Chicago Press, vol. 108(1), pages 1-33, February.
- Allen, Franklin & Gale, Douglas, 1998. "Financial Contagion," Working Papers 98-33, C.V. Starr Center for Applied Economics, New York University.
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- Kartik Anand & Prasanna Gai & Sujit Kapadia & Simon Brennan & Matthew Willison, 2011. "A Network Model of Financial System Resilience," SFB 649 Discussion Papers SFB649DP2011-051, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Anand, Kartik & Gai, Prasanna & Kapadia, Sujit & Brennan, Simon & Willison, Matthew, 2012. "A network model of financial system resilience," Bank of England working papers 458, Bank of England.
- Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
- 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 401-419, June.
- Jan Willem van den End, 2012. "Liquidity stress-tester: do Basel III and unconventional monetary policy work?," Applied Financial Economics, Taylor & Francis Journals, vol. 22(15), pages 1233-1257, August.
- Jan Willem van den End, 2010. "Liquidity Stress-Tester: Do Basel III and Unconventional Monetary Policy Work?," DNB Working Papers 269, Netherlands Central Bank, Research Department.
- Mistrulli, Paolo Emilio, 2011. "Assessing financial contagion in the interbank market: Maximum entropy versus observed interbank lending patterns," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1114-1127, May.
- Paolo Emilio Mistrulli, 2007. "Assessing financial contagion in the interbank market: Maximum entropy versus observed interbank lending patterns," Temi di discussione (Economic working papers) 641, Bank of Italy, Economic Research and International Relations Area.
- Costeiu, Adrian & Neagu, Florian, 2013. "Bridging the banking sector with the real economy: a financial stability perspective," Working Paper Series 1592, European Central Bank. Full references (including those not matched with items on IDEAS)
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