Liquidity Risk, Credit Risk and Interbank Competition PDF Download
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Author: Jian Cai
Publisher:
ISBN:
Category :
Languages : en
Pages : 49
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Book Description
This paper examines the impact of interbank competition on liquidity risk and on the interaction between liquidity and credit risks. We first show that financial intermediation with deposit insurance may increase the impact of liquidity risk, so that intermediated loans may carry higher liquidity premia for borrowers than market-financed loans. Second, with negligible interbank competition, higher credit risk may reduce liquidity risk, so a bank's need for liquidity may also induce it to take on additional credit risk. Third, we show that Bertrand competition among banks in the loan market, introduced by outside lenders purchasing the relationship-specific liquidation skilll of the incumbent lender, has two potential effects: (i) it can improve loan liquidity, and (ii) it can make credit and liquidity risks comonotonic, thereby reducing the inclination of banks to take on excessive credit risk to cope with their liquidity needs. However, interbank competition improves loan liquidity only under some conditions. We identify conditions under which greater interbank competition increases loan liquidity and reduces each bank's overall risk, which includes credit and liquidity risks.
Author: Jian Cai
Publisher:
ISBN:
Category :
Languages : en
Pages : 49
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Book Description
This paper examines the impact of interbank competition on liquidity risk and on the interaction between liquidity and credit risks. We first show that financial intermediation with deposit insurance may increase the impact of liquidity risk, so that intermediated loans may carry higher liquidity premia for borrowers than market-financed loans. Second, with negligible interbank competition, higher credit risk may reduce liquidity risk, so a bank's need for liquidity may also induce it to take on additional credit risk. Third, we show that Bertrand competition among banks in the loan market, introduced by outside lenders purchasing the relationship-specific liquidation skilll of the incumbent lender, has two potential effects: (i) it can improve loan liquidity, and (ii) it can make credit and liquidity risks comonotonic, thereby reducing the inclination of banks to take on excessive credit risk to cope with their liquidity needs. However, interbank competition improves loan liquidity only under some conditions. We identify conditions under which greater interbank competition increases loan liquidity and reduces each bank's overall risk, which includes credit and liquidity risks.
Author: Yoram Landskroner
Publisher:
ISBN:
Category :
Languages : en
Pages : 16
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Book Description
Liquidity risk is one of the major risks faced by banks in addition to credit risk, market risk and operating risk. In this paper we construct a stylized model of bank management where the asset and liabilities liquidity structure are a key element in determining the bank's exposure to liquidity risk. The main results of our model are that liquidity risk increases when competition in the credit market increases while increasing competition in the deposit market will decrease the liquidity shortage. Our results are of particular importance as banks face increased liquidity risk due to there cent developments in the financial markets.
Author: Raja Almarzoqi
Publisher:
ISBN: 9781513538457
Category : Bank failures
Languages : en
Pages :
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Book Description
Author: E. Banks
Publisher: Springer
ISBN: 0230508111
Category : Business & Economics
Languages : en
Pages : 253
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Book Description
Much critical attention has been given in recent years to market and credit risks, which have a significant effect on corporate and financial operations and must be understood and managed with care. While these areas have rightly received considerable scrutiny, another critical dimension of financial risk - based on corporate liquidity - has been largely overlooked. Liquidity risk is the risk of loss arising from an inability to quickly realise asset value or obtain funding and can be damaging if not properly considered or actively managed. Lack of liquidity can lead to large losses in asset/liability portfolios and off balance sheet activities and in extreme cases can trigger financial distress and insolvency. Liquidity Risk is a comprehensive treatment of the topic focusing on the nature of the risk, problems that arise in asset and funding liquidity and mechanisms that can be developed to monitor, measure and control such risks.
Author: Antonio Castagna
Publisher: John Wiley & Sons
ISBN: 1119990246
Category : Business & Economics
Languages : en
Pages : 600
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Book Description
A fully up-to-date, cutting-edge guide to the measurement and management of liquidity risk Written for front and middle office risk management and quantitative practitioners, this book provides the ground-level knowledge, tools, and techniques for effective liquidity risk management. Highly practical, though thoroughly grounded in theory, the book begins with the basics of liquidity risks and, using examples pulled from the recent financial crisis, how they manifest themselves in financial institutions. The book then goes on to look at tools which can be used to measure liquidity risk, discussing risk monitoring and the different models used, notably financial variables models, credit variables models, and behavioural variables models, and then at managing these risks. As well as looking at the tools necessary for effective measurement and management, the book also looks at and discusses current regulation and the implication of new Basel regulations on management procedures and tools.
Author: E. Banks
Publisher: Springer
ISBN: 1137374403
Category : Business & Economics
Languages : en
Pages : 315
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Book Description
Liquidity Management is now a core consideration for banks and other financial institutions following the collapse of numerous well-known banks in 2007-8. This timely new edition will provide practical guidance on liquidity risk and its management – now mandatory under new regulation.
Author: Leonard Matz
Publisher: Xlibris Corporation
ISBN: 1462892450
Category : Business & Economics
Languages : en
Pages : 400
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Book Description
Villains for the Great Meltdown of 2007-2008 seem plentiful. But the very concept of finding and punishing villains misses the target. Ideally, we learn from past failures. We perfect our craft. Lessons to be learned from the Great Meltdown are not just plentiful - they are also insightful. In LIQUIDITY RISK MEASUREMENT AND MANAGENT -- BASEL III AND BEYOND, Mr. Matz provides detailed, practical analysis and recommendations covering every aspect of liquidity risk measurement and management. * Examples of what went wrong are used extensively. * Best practices procedures are explained. * New regulatory guidance - both qualitative and quantitative, including Basel III - is discussed in detail.* Source material and examples from many countries are included.This is the "how to guide" for liquidity risk managers in financial institutions around the globe.
Author: Leonard Matz
Publisher: John Wiley & Sons
ISBN: 0470821825
Category : Business & Economics
Languages : en
Pages : 413
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Book Description
Major events such as the Asian crisis in 1997, the Russian default on short-term debt in 1998, the downfall of the hedge fund long-term capital management in 1998 and the disruption in payment systems following the World Trade Center attack in 2001, all resulted in increased management’s attention to liquidity risk. Banks have realized that adequate systems and processes for identifying, measuring, monitoring and controlling liquidity risks help them to maintain a strong liquidity position, which in turn will increase the confidence of investors and rating agencies as well as improve funding costs and availability. Liquidity Risk Measurement and Management: A Practitioner’s Guide to Global Best Practices provides the best practices in tools and techniques for bank liquidity risk measurement and management. Experienced bankers and highly regarded liquidity risk experts share their insights and practical experiences in this book.
Author: Thi Ngoc My Nguyen
Publisher:
ISBN:
Category :
Languages : en
Pages : 910
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Book Description
This thesis investigates the impact of market power on bank liquidity; the association between competition and systemic liquidity; and whether the associations between liquidity and stability at both bank- and systemic- levels are affected by competition. The first research question is explored in the context of 101 countries over 1996-2013 while the second and the third, which require listed banks, use a smaller sample of 32 nations during 2001-2013. The Panel Least Squares and the system Generalized Method of Moments estimators are employed to assess these associations. These research issues are further examined separately for countries with different level of economic development. Such divisions are essential since these countries exhibit varying degrees of market power, banking competition, liquidity risk preference, regulations and financial infrastructures.Regarding the market power-liquidity relationship, the findings suggest an inverted U-shaped association between market power and bank liquidity. With an initial increase in market power, banks increase their liquid assets and become net lenders in the interbank markets. When market power exceeds a certain threshold, however, banks hold less liquid assets and become net interbank borrowers. For a given level of market power, ceteris paribus, banks in more developed nations have lower investments in asset liquidity and obtain more funding through the interbank market than those in their developing country counterparts. While competition benefits bank-level asset and funding liquidity, it decreases systemic liquidity. By affecting loan profitability and banks' incentives to hold liquid reserves, competition influences interbank market liquidity and thus asset prices. This in turn influences banks' ability to withstand liquidity shocks and systemic liquidity crises. On the impact of competition on the association between liquidity and stability, bank market power seems to reinforce the positive impact of funding liquidity on bank stability. In contrast, banking systemic liquidity appears only to enhance systemic stability in less competitive markets. This is because greater competition encourages banks to assume more risks (i.e. credit and capital risks) that offset systemic liquidity's positive impact. This thesis offers several contributions to the bank liquidity hoarding and industrial organization literatures by showing that bank liquidity risk varies with market power. It similarly expands the financial intermediation literature by providing evidence that strategic interactions among banks expose them to systemic liquidity crises. It further adds to the competition-stability literature by providing evidence that competition leads to a reversal of the benefits of liquidity on stability at both bank- and systemic- levels. It also improves the prior methodology by deriving a systemic liquidity risk indicator using a Principal Component Analysis, examining both bank- and systemic-levels of liquidity and stability, employing a three year rolling window to reflect more frequent changes of competition over time and using bank distance-to-capital proposed by Chan-Lau and Sy (2007) in addition to the traditional distance-to-default in calculating banking systemic stability. These findings should have implications for policymakers, regulators, central bankers and investors in wide-range of countries. Policy makers should benefit from learning that the new international bank liquidity standards (fully implemented by 2019) incorporate an adjustment to reflect bank market power and competition. Regulators should also avoid "one size fits all" approach as bank liquidity is influenced by cross-country differences in regulation, industry characteristics, financial development and presence/absence of explicit deposit guarantees. Central bankers should learn the impact of competition on liquidity and stability when extending their liquidity support. Finally, investors should be aware their banks' competitive environment and liquidity position before investing.
Author: Roberto Ruozi
Publisher: Springer Science & Business Media
ISBN: 3642295800
Category : Business & Economics
Languages : en
Pages : 59
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Book Description
The recent turmoil on financial markets has made evident the importance of efficient liquidity risk management for the stability of banks. The measurement and management of liquidity risk must take into account economic factors such as the impact area, the timeframe of the analysis, the origin and the economic scenario in which the risk becomes manifest. Basel III, among other things, has introduced harmonized international minimum requirements and has developed global liquidity standards and supervisory monitoring procedures. The short book analyses the economic impact of the new regulation on profitability, on assets composition and business mix, on liabilities structure and replacement effects on banking and financial products.
