A liquidity risk index as a regulatory tool for systemically important banks? An empirical assessment across two financial crises
Giuseppe Marotta () and
Costanza Torricelli ()
Applied Economics, 2015, vol. 47, issue 2, 129-147
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.
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