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Early Warning Indicators: Banking Liquidity Risk

Author

Listed:
  • Ndari Suryaningsih

    (Bank Indonesia)

  • Diana Yumanita

    (Bank Indonesia)

  • Elis Deriantino

    (Bank Indonesia)

Abstract

This study is aimed at developing early warning indicators (EWI) for banking liquidity risk. The banking liquidity risk indicators are selected based on the source of the risk, i.e. funding liquidity risk, market liquidity risk, and risk in the payments system, especially risks related to real time gross settlement (RTGS). The indicators which are selected as EWI must be able to predict the liquidity stress event in Q4 2008 as well as minimize statistical error. The statistical evaluation results show that indicators of funding liquidity risk which include the loan to deposit ratio (LDR), the funding gap, the inverse net stable funding ratio (adjusted), and the ratio of liquidity creation in the form of an annual change along with the short term liquidity ration can give a signal one year before the stress event of 2008, meaning that these indicators can become EWI of banking liquidity risk.

Suggested Citation

  • Ndari Suryaningsih & Diana Yumanita & Elis Deriantino, 2014. "Early Warning Indicators: Banking Liquidity Risk," Working Papers WP/1/2014, Bank Indonesia.
    • Handle: RePEc:idn:wpaper:wp012014
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    File URL: http://publication-bi.org/repec/idn/wpaper/WP012014.pdf
    File Function: First version, 2014
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    More about this item

    Keywords

    early warning indicator; banking liquidity risk;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

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