Download or read book A Framework for Systemwide Liquidity Analysis written by Xiaodan Ding and published by International Monetary Fund. This book was released on 2024-05-17 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: We developed a novel Systemwide Liquidity (SWL) framework to identify liquidity stress in the system that goes beyond banks and to assess the role played by non-bank financial institutions (NBFIs) in episodes of liquidity stress. The framework, which complements standard liquidity and interconnectedness analyses, traces the flow of liquidity among various agents in the economy and explores possible transmission channels and amplification mechanisms of correlated liquidity shocks. The framework uses unique balance sheet and asset encumbrance data to demonstrate the importance of assessing liquidity at the system level by allowing for (i) analyses of each agent’s contribution to liquidity stress, (ii) analyses of the impact of different behavioral assumptions (e.g., pecking order of collateral utilization, negative externalities of fire-sales and margin positions), and (iii) policy simulations. Since this framework covers a comprehensive set of financial instruments and transactions, it paves the way for harmonization of systemwide liquidity analysis across countries. We applied this general framework to Mexico in the context of the FSAP. Results for Mexico show that commercial banks safeguard the resiliency of the financial system by backstopping the liquidity needs of other agents. Moreover, certain sectors appear more vulnerable when binding regulatory liquidity constraints trigger risk-averse behavioral responses.
Download or read book Systemwide Liquidity Stress Testing Tool written by Ms. Hiroko Oura and published by International Monetary Fund. This book was released on 2022-12-16 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: Developing a systemic liquidity stress testing tool is challenging due to data constraints and hard-to-model behavioral factors. There has yet to be a uniformly accepted model partly because the nature of systemic liquidity risks differs significantly across countries. This paper offers a simple Excel-based tool to assess the high-level impact of aggregate liquidity stress on the whole economy and gauge its spillover across banks, non-bank financial institutions (NBFIs), and non-financial economic sectors. It primarily uses the balance sheet approach (BSA) data—a sector-aggregate matrix of financial exposure by counterpart—that have become increasingly available for various economies with all income levels. The results can identify systemically important financial linkages to be analyzed further and help calibrate macroprudential measures and a liquidity support framework. When liquidity stress stems from capital outflows, the tool can enrich policy discussion based on integrated policy framework (IPF) and international reserve adequacy perspectives.
Download or read book Next Generation System Wide Liquidity Stress Testing written by Mr.Claus Puhr and published by International Monetary Fund. This book was released on 2012-01-01 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: A framework to run system-wide, balance sheet data-based liquidity stress tests is presented. The liquidity framework includes three elements: (a) a module to simulate the impact of bank run scenarios; (b) a module to assess risks arising from maturity transformation and rollover risks, implemented either in a simplified manner or as a fully-fledged cash flow-based approach; and (c) a framework to link liquidity and solvency risks. The framework also allows the simulation of how banks cope with upcoming regulatory changes (Basel III), and accommodates differences in data availability. A case study shows the impact of a "Lehman" type event for stylized banks.
Download or read book Measuring Systemic Risk Adjusted Liquidity SRL written by Andreas Jobst and published by International Monetary Fund. This book was released on 2012-08-01 with total page 70 pages. Available in PDF, EPUB and Kindle. Book excerpt: Little progress has been made so far in addressing—in a comprehensive way—the externalities caused by impact of the interconnectedness within institutions and markets on funding and market liquidity risk within financial systems. The Systemic Risk-adjusted Liquidity (SRL) model combines option pricing with market information and balance sheet data to generate a probabilistic measure of the frequency and severity of multiple entities experiencing a joint liquidity event. It links a firm’s maturity mismatch between assets and liabilities impacting the stability of its funding with those characteristics of other firms, subject to individual changes in risk profiles and common changes in market conditions. This approach can then be used (i) to quantify an individual institution’s time-varying contribution to system-wide liquidity shortfalls and (ii) to price liquidity risk within a macroprudential framework that, if used to motivate a capital charge or insurance premia, provides incentives for liquidity managers to internalize the systemic risk of their decisions. The model can also accommodate a stress testing approach for institution-specific and/or general funding shocks that generate estimates of systemic liquidity risk (and associated charges) under adverse scenarios.
Download or read book Macroprudential Policy An Organizing Framework Background Paper written by International Monetary Fund. Monetary and Capital Markets Department and published by International Monetary Fund. This book was released on 2011-03-14 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: MCM conducted a survey in December 2010 to take stock of international experiences with financial stability and the evolving macroprudential policy framework. The survey was designed to seek information in three broad areas: the institutional setup for macroprudential policy, the analytical approach to systemic risk monitoring, and the macroprudential policy toolkit. The survey was sent to 63 countries and the European Central Bank (ECB), including all countries in the G-20 and those subject to mandatory Financial Sector Assessment Programs (FSAPs). The target list is designed to cover a broad range of jurisdictions in all regions, but more weight is given to economies that are systemically important (see Annex for details). The response rate is 80 percent. This note provides a summary of the survey’s main findings.
Download or read book Systemic Contingent Claims Analysis written by Mr.Andreas A. Jobst and published by International Monetary Fund. This book was released on 2013-02-27 with total page 93 pages. Available in PDF, EPUB and Kindle. Book excerpt: The recent global financial crisis has forced a re-examination of risk transmission in the financial sector and how it affects financial stability. Current macroprudential policy and surveillance (MPS) efforts are aimed establishing a regulatory framework that helps mitigate the risk from systemic linkages with a view towards enhancing the resilience of the financial sector. This paper presents a forward-looking framework ("Systemic CCA") to measure systemic solvency risk based on market-implied expected losses of financial institutions with practical applications for the financial sector risk management and the system-wide capital assessment in top-down stress testing. The suggested approach uses advanced contingent claims analysis (CCA) to generate aggregate estimates of the joint default risk of multiple institutions as a conditional tail expectation using multivariate extreme value theory (EVT). In addition, the framework also helps quantify the individual contributions to systemic risk and contingent liabilities of the financial sector during times of stress.
Download or read book Macroprudential Stress Tests and Policies Searching for Robust and Implementable Frameworks written by Ron Anderson and published by International Monetary Fund. This book was released on 2018-09-11 with total page 79 pages. Available in PDF, EPUB and Kindle. Book excerpt: Macroprudential stress testing (MaPST) is becoming firmly embedded in the post-crisis policy-frameworks of financial-sectors around the world. MaPSTs can offer quantitative, forward-looking assessments of the resilience of financial systems as a whole, to particularly adverse shocks. Therefore, they are well suited to support the surveillance of macrofinancial vulnerabilities and to inform the use of macroprudential policy-instruments. This report summarizes the findings of a joint-research effort by MCM and the Systemic-Risk-Centre, which aimed at (i) presenting state-of-the-art approaches on MaPST, including modeling and implementation-challenges; (ii) providing a roadmap for future-research, and; (iii) discussing the potential uses of MaPST to support policy.
Download or read book Euro Area Policies written by International Monetary Fund. Monetary and Capital Markets Department and published by International Monetary Fund. This book was released on 2018-07-19 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: The flexibility shown by the ECB/Eurosystem in adapting its framework, as required by circumstances, has helped improve funding and liquidity conditions. Compared to the situation pre-crisis, the ECB/Eurosystem has provided liquidity against a broader range of collateral and for as long as four years in terms of maturity; extended liquidity in foreign currency; conducted outright purchases of public and private sector assets (now tapering off); and reduced interest rates into negative territory. In these arrangements, policy is directed from the center, but is implemented mostly by the National Central Banks (NCBs); risks are largely shared. Market participants are complimentary about the role the ECB/Eurosystem has played in backstopping the financial system and its forward guidance on monetary policy.
Download or read book Canada written by International Monetary Fund. Monetary and Capital Markets Department and published by International Monetary Fund. This book was released on 2019-06-24 with total page 85 pages. Available in PDF, EPUB and Kindle. Book excerpt: This Financial System Stability Assessment paper discusses that Canada has enjoyed favorable macroeconomic outcomes over the past decades, and its vibrant financial system continues to grow robustly. However, macrofinancial vulnerabilities—notably, elevated household debt and housing market imbalances—remain substantial, posing financial stability concerns. Various parts of the financial system are directly exposed to the housing market and/or linked through housing finance. The financial system would be able to manage severe macrofinancial shocks. Major deposit-taking institutions would remain resilient, but mortgage insurers would need additional capital in a severe adverse scenario. Housing finance is broadly resilient, notwithstanding some weaknesses in the small non-prime mortgage lending segment. Although banks’ overall capital buffers are adequate, additional required capital for mortgage exposures, along with measures to increase risk-based differentiation in mortgage pricing, would be desirable. This would help ensure adequate through-the cycle buffers, improve mortgage risk-pricing, and limit procyclical effects induced by housing market corrections.
Download or read book The Net Stable Funding Ratio written by Jeanne Gobat and published by International Monetary Fund. This book was released on 2014-06-12 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: As part of Basel III reforms, the NSFR is a new prudential liquidity rule aimed at limiting excess maturity transformation risk in the banking sector and promoting funding stability. The revised package has been issued for public consultation with a plan of making the rule binding in 2018. This paper complements earlier quantitative impact studies by discussing the potential impact of introducing the NSFR based on empirical analysis of end-2012 financial data for over 2000 banks covering 128 countries. The calculations show that a sizeable percentage of the banks in most countries would meet the minimum NSFR prudential requirement at end-2012, and, further, that larger banks tend to be more vulnerable to the introduction of the NSFR. Additionally, by comparing the NSFR to other structural funding mismatch indicators, we find that the NSFR is a relatively consistent regulatory measure for capturing banks’ funding risk. Finally, the paper discusses key policy issues for consideration in implementing the NSFR.
Download or read book Stress Testing at the IMF written by Mr.Tobias Adrian and published by International Monetary Fund. This book was released on 2020-02-05 with total page 73 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper explains specifics of stress testing at the IMF. After a brief section on the evolution of stress tests at the IMF, the paper presents the key steps of an IMF staff stress test. They are followed by a discussion on how IMF staff uses stress tests results for policy advice. The paper concludes by identifying remaining challenges to make stress tests more useful for the monitoring of financial stability and an overview of IMF staff work program in that direction. Stress tests help assess the resilience of financial systems in IMF member countries and underpin policy advice to preserve or restore financial stability. This assessment and advice are mainly provided through the Financial Sector Assessment Program (FSAP). IMF staff also provide technical assistance in stress testing to many its member countries. An IMF macroprudential stress test is a methodology to assess financial vulnerabilities that can trigger systemic risk and the need of systemwide mitigating measures. The definition of systemic risk as used by the IMF is relevant to understanding the role of its stress tests as tools for financial surveillance and the IMF’s current work program. IMF stress tests primarily apply to depository intermediaries, and, systemically important banks.
Download or read book International Convergence of Capital Measurement and Capital Standards written by and published by Lulu.com. This book was released on 2004 with total page 294 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Measuring Systemic Liquidity Risk and the Cost of Liquidity Insurance written by Tiago Severo and published by International Monetary Fund. This book was released on 2012-07-01 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: I construct a systemic liquidity risk index (SLRI) from data on violations of arbitrage relationships across several asset classes between 2004 and 2010. Then I test whether the equity returns of 53 global banks were exposed to this liquidity risk factor. Results show that the level of bank returns is not directly affected by the SLRI, but their volatility increases when liquidity conditions deteriorate. I do not find a strong association between bank size and exposure to the SLRI - measured as the sensitivity of volatility to the index. Surprisingly, exposure to systemic liquidity risk is positively associated with the Net Stable Funding Ratio (NSFR). The link between equity volatility and the SLRI allows me to calculate the cost that would be borne by public authorities for providing liquidity support to the financial sector. I use this information to estimate a liquidity insurance premium that could be paid by individual banks in order to cover for that social cost.
Download or read book Interconnectedness and Contagion Analysis A Practical Framework written by Mrs.Jana Bricco and published by International Monetary Fund. This book was released on 2019-10-11 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: The analysis of interconnectedness and contagion is an important part of the financial stability and risk assessment of a country’s financial system. This paper offers detailed and practical guidance on how to conduct a comprehensive analysis of interconnectedness and contagion for a country’s financial system under various circumstances. We survey current approaches at the IMF for analyzing interconnectedness within the interbank, cross-sector and cross-border dimensions through an overview and examples of the data and methodologies used in the Financial Sector Assessment Program. Finally, this paper offers practical advice on how to interpret results and discusses potential financial stability policy recommendations that can be drawn from this type of in-depth analysis.
Download or read book Short Term Wholesale Funding and Systemic Risk written by International Monetary Fund and published by International Monetary Fund. This book was released on 2012-02-01 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we identify some of the main factors behind systemic risk in a set of international large-scale complex banks using the novel CoVaR approach. We find that short-term wholesale funding is a key determinant in triggering systemic risk episodes. In contrast, we find no evidence that a larger size increases systemic risk within the class of large global banks. We also show that the sensitivity of system-wide risk to an individual bank is asymmetric across episodes of positive and negative asset returns. Since short-term wholesale funding emerges as the most relevant systemic factor, our results support the Basel Committee's proposal to introduce a net stable funding ratio, penalizing excessive exposure to liquidity risk.
Download or read book The Federal Reserve System Purposes and Functions written by Board of Governors of the Federal Reserve System and published by . This book was released on 2002 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Provides an in-depth overview of the Federal Reserve System, including information about monetary policy and the economy, the Federal Reserve in the international sphere, supervision and regulation, consumer and community affairs and services offered by Reserve Banks. Contains several appendixes, including a brief explanation of Federal Reserve regulations, a glossary of terms, and a list of additional publications.
Download or read book Mexico written by International Monetary Fund. Monetary and Capital Markets Department and published by International Monetary Fund. This book was released on 2022-12-08 with total page 112 pages. Available in PDF, EPUB and Kindle. Book excerpt: Mexico has a resilient financial system but a low level of financial inclusion. The financial system is smaller than in peer countries and is dominated by commercial banks that have had large capital and liquidity buffers for years. Despite these buffers and the high profitability in the banking sector, credit growth has been low due to both supply and demand factors, with banks targeting mainly the prime segments of the economy. The COVID-19 pandemic has had a limited impact on the financial system, reflecting a mix of resumption in mobility and support from global and domestic policies.
