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Schmitt, Eugenia
- Liquidity Gap Report for Stress Testing Structural Liquidity Risk
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1 Fresenius, University of Applied Sciences, DE
1 Fresenius, University of Applied Sciences, DE
Source
International Journal of Financial Management, Vol 7, No 4 (2017), Pagination: 43-53Abstract
The need to focus on banks’ funding structure and stress testing in an explicit way arose as a consequence of the crisis of past decades. Liquidity risks usually occur as a consequence of other kinds of risks, hence analysing scenarios in a prospective manner is essential for the assessment if the bank can fulfill its obligations as they come due and if its funding costs are appropriate. The structural liquidity risk and the degree of the liquidity mismatch can be measured based on the liquidity gap analysis, where expected cash-in-and outflows, divided in different time-buckets are depicted. The liquidity gap report (LGR) shows if a liquidity shortcoming appears in the future and how high is the amount a bank would have to pay, if any hedging were not possible. This paper shows how to build a comprehensive LGR which is the base for both, liquidity and wealth risk evaluation. To improve the accuracy of the forecast, the counterbalancing capacity will be incorporated into the LGR. This tool is a methodological basis for quantitative and qualitative risk assessment and stress testing.Keywords
Liquidity Risk, Stress-Testing, Banks, Basel III, Counterbalancing Capacity.
References
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- Measurement of Total Liquidity Assets Risk Resulting from Increase of Liquidity Spread
Abstract Views :186 |
PDF Views:0
Authors
Affiliations
1 FinRiskConsult, Fresenius, University of Applied Sciences, University of Applied Management, DE
1 FinRiskConsult, Fresenius, University of Applied Sciences, University of Applied Management, DE
Source
International Journal of Financial Management, Vol 8, No 2 (2018), Pagination: 32-42Abstract
The importance of analysing the effects of changes in liquidity spreads for long maturities on both costs and wealth increases with the increasing importance of capital market-based refinancing by banks. The present study proposes a present value based approach for middle-sized banks. It enables to measure the impact of the extreme change in the institution’s own liquidity and spreads on the current liquidity situation by investigating the entire maturity horizon to a dangerous extent. Different scenarios for refinancing alternatives due to the different developments of the liquidity spreads can be analysed straightforwardly. This enables a rapid assessment of the risk situation over the modelled time. In the dynamized version, which covers the planning horizon, the interest rate effects arising over time are also made visible. The result of the model approach is suitable for strategic decisions in planning the refinancing structure under alternative conditions.Keywords
Banks, Basel III, Liquidity Risk, Liquidity Spread, Present Value, Stress-Testing.References
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- Schmitt, E. (2016). Stress-testing model for structural liquidity risk. In J. Krajicek, J. Nesleha & K. Urbanovsky, (Ed.), European Financial Systems 2016. Proceedings of the 13th International Scientific Conference (pp. 692-699). Brno: Masaryk University, Muni Press.
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