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Funding Liquidity Risk in a Quantitative Model of Systemic Stability

In: Financial Stability, Monetary Policy, and Central Banking

Author

Listed:
  • David Aikman

    (Bank of England)

  • Piergiorgio Alessandri

    (Bank of England)

  • Bruno Eklund

    (Bank of England)

  • Prasanna Gai

    (Australian National University)

  • Sujit Kapadia

    (Bank of England)

  • Elizabeth Martin

    (Bank of England)

  • Nada Mora

    (Federal Reserve Bank of Kansas City)

  • Gabriel Sterne

    (Bank of England)

  • Matthew Willison

    (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.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • David Aikman & Piergiorgio Alessandri & Bruno Eklund & Prasanna Gai & Sujit Kapadia & Elizabeth Martin & Nada Mora & Gabriel Sterne & Matthew Willison, 2011. "Funding Liquidity Risk in a Quantitative Model of Systemic Stability," Central Banking, Analysis, and Economic Policies Book Series, in: Rodrigo Alfaro (ed.),Financial Stability, Monetary Policy, and Central Banking, edition 1, volume 15, chapter 12, pages 371-410, Central Bank of Chile.
    • Handle: RePEc:chb:bcchsb:v15c12pp371-410
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    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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