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A liquidity risk index as a regulatory tool for systemically important banks? An empirical assessment across two financial crises

Gianfranco Gianfelice, Giuseppe Marotta () and Costanza Torricelli ()

Applied Economics, 2015, vol. 47, issue 2, pages 129-147

Abstract: We provide an empirical assessment of the suggestion, based on Severo (2012), to use a systemic liquidity risk index (SLRI) for estimating liquidity premia that could be charged on large banks as a compensation for the implicit liquidity support obtained from public authorities (Blancher et al. , 2013). To this end we compute, over the period January 2004-December 2012, a parsimonious and fully documented SLRI. We also investigate its statistical significance in explaining the level and variability of stock returns for a group of large international banks across the subprime and the Eurozone sovereign debt crises. Main findings are two: our more parsimonious SLRI is close to Severo's but provides a stronger signal of liquidity stress and recovery episodes; we consistently fail to detect, within and across the two crises, a stable group of banks among the global systemically important ones listed by the Financial Stability Board.

Date: 2015
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