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  • MS-JIMF-D-16-00201_final

    Rights statement: This is the author’s version of a work that was accepted for publication in Journal of International Money and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of International Money and Finance, 73, Part A, 2017 DOI: 10.1016/j.jimonfin.2017.02.001

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System stress testing of bank liquidity risk

Research output: Contribution to journalJournal article

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<mark>Journal publication date</mark>05/2017
<mark>Journal</mark>Journal of International Money and Finance
Issue numberPart A
Volume73
Number of pages19
Pages (from-to)22-40
Publication statusPublished
Early online date8/02/17
Original languageEnglish

Abstract

Abstract Using a stress test methodology for bank liquidity risk we estimate the aggregate liquidity shortfall in the U.S. commercial banking system at the height of 2007–09 crisis, identifying key sources of funding vulnerabilities and the dominant composition of liquid asset holdings against liquidity shocks. The largest liquidity shocks to the system are estimated in the first half of the crisis, in line with Acharya and Mora (2015). Large banks experience the largest liquidity shortfall in 2008:Q1 ($154 billion or 14% of total assets) and small banks in 2007:Q4 ($117 billion or 11% of total assets). The dominant funding vulnerability to the system stems from large time deposits, while government securities largely dominate other classes of liquid assets as liquidity backstop. The analysis draws on detailed bank-level data on balance sheet flows of funds and applies stochastic dominance efficiency methods to capture liquidity risk diversification effects across assets and liabilities.

Bibliographic note

This is the author’s version of a work that was accepted for publication in Journal of International Money and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of International Money and Finance, 73, Part A, 2017 DOI: 10.1016/j.jimonfin.2017.02.001