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Measuring heterogeneity in bank liquidity risk: who are the winners and the losers?

Jean-Loup Soula ()

Working Papers of LaRGE Research Center from Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg

Abstract: The 2007-2009 crisis stressed the importance of liquidity for banks. Using a risk factor model, we propose a measure of bank exposure to liquidity risk based on their sensitivity to aggregate liquidity conditions. Results indicate that liquidity risk is a specific risk. Moreover, this measure sheds light on the heterogeneity among banks in terms of exposure to liquidity risk. Banks benefit, lose or are insensitive to liquidity conditions, and we document large variation in exposure across the 2008 and 2011 crises. Larger size and capital levels tend to insulate banks from aggregate liquidity risk. However, deposit share, reliance on wholesale funding and funding gap impact only banks whose risk decreases with increasing aggregate liquidity risk. These ratios indicate the level of liquidity production by banks. This suggests that market discipline applies to liquidity production but only on the less risky banks in case of a liquidity crisis. Thus market discipline appears to be one-sided. To that extent it reinforces the necessity to impose liquidity requirements to all banks, as through the Basel III liquidity ratios.

Keywords: E51; G21; G28; G32. (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-ban and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Measuring heterogeneity in bank liquidity risk: Who are the winners and losers? (2017) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:lar:wpaper:2015-09

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