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The Relationship between Liquidity Risk and Credit Risk in The CNB's Liquidity Stress Tests

In: CNB Financial Stability Report 2015/2016

Author

Listed:
  • Zlatuse Komarkova
  • Marek Rusnak
  • Hana Hejlova

Abstract

This article describes an extension to the bank liquidity stress test methodology used by the CNB. The new test has been lengthened to a one-year stress period. Shocks are generated using the CNB's macro-stress scenario and bank solvency macro-stress test results. The test concept is based on the principles of the European LCR and NSFR liquidity standards. By changing its liquidity test methodology the CNB is responding to the need to incorporate the impact of credit risk into the liquidity position of Czech banks and to monitor their liquidity position over a longer stress period. The presented methodology is then applied to a sample of Czech banks. This allows us to monitor the sensitivity of their liquidity position to the combination of shocks under consideration.

Suggested Citation

  • Zlatuse Komarkova & Marek Rusnak & Hana Hejlova, 2016. "The Relationship between Liquidity Risk and Credit Risk in The CNB's Liquidity Stress Tests," Occasional Publications - Chapters in Edited Volumes, in: CNB Financial Stability Report 2015/2016, chapter 0, pages 127-136, Czech National Bank.
    • Handle: RePEc:cnb:ocpubc:fsr1516/2
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    References listed on IDEAS

    as
    1. Eric Wong & Cho-Hoi Hui, 2009. "A Liquidity Risk Stress-Testing Framework with Interaction between Market and Credit Risks," Working Papers 0906, Hong Kong Monetary Authority.
    2. Zlatuse Komarkova & Adam Gersl & Lubos Komarek, 2011. "Models for Stress Testing Czech Banks' Liquidity Risk," Working Papers 2011/11, Czech National Bank.
    3. Heider, Florian & Hoerova, Marie & Holthausen, Cornelia, 2015. "Liquidity hoarding and interbank market rates: The role of counterparty risk," Journal of Financial Economics, Elsevier, vol. 118(2), pages 336-354.
    4. Mr. Claus Puhr & Mr. Andre O Santos & Mr. Christian Schmieder & Salih N. Neftci & Mr. Benjamin Neudorfer & Mr. Stefan W. Schmitz & Mr. Heiko Hesse, 2012. "Next Generation System-Wide Liquidity Stress Testing," IMF Working Papers 2012/003, International Monetary Fund.
    5. Jan Willem van den End, 2012. "Liquidity stress-tester: do Basel III and unconventional monetary policy work?," Applied Financial Economics, Taylor & Francis Journals, vol. 22(15), pages 1233-1257, August.
    6. Adam Gersl & Petr Jakubik & Tomas Konecny & Jakub Seidler, 2012. "Dynamic Stress Testing: The Framework for Testing Banking Sector Resilience Used by the Czech National Bank," Working Papers 2012/11, Czech National Bank.
    7. Diebold, Francis X. & Rudebusch, Glenn D. & Borag[caron]an Aruoba, S., 2006. "The macroeconomy and the yield curve: a dynamic latent factor approach," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 309-338.
    8. Adam Gersl & Zlatuse Komarkova & Lubos Komarek, 2016. "Liquidity Stress Testing with Second-Round Effects: Application to the Czech Banking Sector," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 66(1), pages 32-49, February.
    9. Jill Cetina, 2015. "Incorporating Liquidity Shocks and Feedbacks in Bank Stress Tests," Briefs 15-06, Office of Financial Research, US Department of the Treasury.
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