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Funding liquidity risk: definition and measurement

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  • Nikolaou, Kleopatra
  • Drehmann, Mathias

Abstract

In this paper we propose definitions of funding liquidity and funding liquidity risk and present a simple, yet intuitive, measure of funding liquidity risk based on data from open market operations. Our empirical analysis uses a unique data set of 135 main refinancing operation auctions conducted at the ECB between June 2005 and December 2007. We find that our proxies for funding liquidity risk are typically stable and low, with occasional spikes, especially during the recent turmoil. We are also able to document downward spirals between funding liquidity risk and market liquidity. JEL Classification: E58, G21

Suggested Citation

  • Nikolaou, Kleopatra & Drehmann, Mathias, 2009. "Funding liquidity risk: definition and measurement," Working Paper Series 1024, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20091024
    Note: 3561872
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    More about this item

    Keywords

    bidding data; funding liquidity; interbank markets; liquidity risk; money market auctions;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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