A New Liquidity Risk Measure for the Chilean Banking Sector

Juan Becerra, Grégory Claeys and Juan Francisco Martínez

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: The objective of this work is to construct an appropriate measure of liquidity risk for Chilean banks. There are already several measures of liquidity risk in the literature. Most of these metrics are based on specific assumptions and expert opinion. In order to overcome the potential problems associated with discretionary assumptions, and to exploit the information available, similar to the work of Drehman and Nikolaou (2012), we propose a metric based on the behavior of banks in the procurement operations Chilean open market (OMO). Due to the particularities of the implementation of monetary policy of the Chilean economy, we introduce an adaptation of the original metric. We calculate the liquidity indicator at an aggregate level and for a sample of groups of banks in a period that includes the recent crisis in the sub-prime. After that, we compare this indicator with a variety of standard metrics proposed in the literature. We find that our metric reasonably captures episodes of liquidity crises and therefore can be used as a complementary tool in the assessment of systemic risks.

Date: 2015-02
New Economics Papers: this item is included in nep-ban, nep-cba and nep-rmg
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Journal Article: A new liquidity risk measure for the Chilean banking sector (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:746

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