Funding liquidity risk in a quantitative model of systemic stability

David Aikman (), Piergiorgio Alessandri, Bruno Eklund, Prasanna Gai (), Sujit Kapadia, Elizabeth Martin (), Nada Mora, Gabriel Sterne () and Matthew Willison
Additional contact information
Prasanna Gai: Australian National University
Elizabeth Martin: Bank of England, Postal: Publications Group Bank of England Threadneedle Street London EC2R 8AH

No 372, Bank of England working papers from Bank of England

Abstract: We demonstrate how the introduction of liability-side feedbacks affects the properties of a quantitative model of systemic risk. The model is known as RAMSI and is still in its development phase. It is based on detailed balance sheets for UK banks and encompasses macro-credit risk, interest and non-interest income risk, network interactions, and feedback effects. Funding liquidity risk is introduced by allowing for rating downgrades and incorporating a simple framework in which concerns over solvency, funding profiles and confidence may trigger the outright closure of funding markets to particular institutions. In presenting results, we focus on aggregate distributions and analysis of a scenario in which large losses at some banks can be exacerbated by liability-side feedbacks, leading to system-wide instability.

Keywords: Systemic risk; financial stability models; funding liquidity risk; contagion (search for similar items in EconPapers)
JEL-codes: G10 G21 G32 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2009-06-15
New Economics Papers: this item is included in nep-rmg
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Citations: View citations in EconPapers (102)

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Related works:
Chapter: Funding Liquidity Risk in a Quantitative Model of Systemic Stability (2011)
Working Paper: Funding Liquidity Risk in a Quantitative Model of Systemic Stability (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0372

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