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Measuring heterogeneity in bank liquidity risk: who are the winners and the losers?

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  • Jean-Loup SOULA

    () (LaRGE Research Center, Université de Strasbourg)

Abstract

The 2007-2009 crisis stressed the importance of liquidity for banks. Using a risk factor model, we propose a measure of bank exposure to liquidity risk based on their sensitivity to aggregate liquidity conditions. Results indicate that liquidity risk is a specific risk. Moreover, this measure sheds light on the heterogeneity among banks in terms of exposure to liquidity risk. Banks benefit, lose or are insensitive to liquidity conditions, and we document large variation in exposure across the 2008 and 2011 crises. Larger size and capital levels tend to insulate banks from aggregate liquidity risk. However, deposit share, reliance on wholesale funding and funding gap impact only banks whose risk decreases with increasing aggregate liquidity risk. These ratios indicate the level of liquidity production by banks. This suggests that market discipline applies to liquidity production but only on the less risky banks in case of a liquidity crisis. Thus market discipline appears to be one-sided. To that extent it reinforces the necessity to impose liquidity requirements to all banks, as through the Basel III liquidity ratios.

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  • Jean-Loup SOULA, 2015. "Measuring heterogeneity in bank liquidity risk: who are the winners and the losers?," Working Papers of LaRGE Research Center 2015-09, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
  • Handle: RePEc:lar:wpaper:2015-09
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    More about this item

    Keywords

    E51; G21; G28; G32.;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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