UID:
edoccha_9959745941702883
Format:
1 online resource (42 pages)
Edition:
First edition.
ISBN:
1-5135-2188-8
,
1-5135-2190-X
Series Statement:
IMF Working Papers
Content:
The paper presents a framework to integrate liquidity and solvency stress tests. An empirical study based on European bond trading data finds that asset sales haircuts depend on the total amount of assets sold and general liquidity conditions in the market. To account for variations in market liquidity, the study uses Markov regime-switching models and links haircuts with market volatility and the amount of securities sold by banks. The framework is accompanied by a Matlab program and an Excel-based tool, which allow the calculations to be replicated for any type of traded security and to be used for liquidity and solvency stress testing.
Note:
Cover -- Contents -- I. Background -- II. Literature Review -- III. The Framework -- A.Overview -- B.Funding Liquidity: Shocks, Liquidity Needs, and Aggregation of Asset Liquidation -- C. Market Liquidity: Haircut Estimation -- D. Solvency: Asset Valuation and Losses -- IV. Example: The Case of Euro Area Banks -- A. Data -- B.Simulations -- C. Haircuts -- D. Results: Impact on Capital -- V. Conclusions and Potential Extensions -- References -- Tables -- 1. Classification of Liquidity Events -- 2. Results of 5 Percent of Asset Fire Sales -- Figures -- 1. Fire Sales, Asset Types, and Liquidity Constraints -- 2. Transmission of Shocks and Solvency-Liquidity Feedback Loop -- 3. Transmission of Shocks in Stress and Non-Stress Regimes -- 4. Sales Amounts, Haircuts, and the Liquidation Horizon -- 5. Aggregation of Liquidity Needs for Haircut Calculation -- 6. Amihud Measure of Market Liquidity -- 7. Price Impact Measures of Market Liquidity -- 8. Volatility Indexes for Selected Countries -- 9. Sovereign Bond Holdings -- 10 Accounting Classification of Sovereign Bond Holdings -- 11. Haircuts on Selected European Sovereign Bonds -- 12. Heatmap of Results under Different Models -- Box -- 1. Contingent Liquidity -- Appendices -- I. Market Liquidity Measures -- II. Use of Market regime Switching Models to Obtain Stressed Funding Costs -- III. Program and templates for haircut and CAR estimation.
Additional Edition:
ISBN 1-5135-1979-4
Language:
English
Bookmarklink
