Modelling systemic liquidity risk with feedback effects in the UK banking sector
Abstract
A liquidity risk stress-testing model which has been tested in the Dutch market and which considers feedback shocks induced by market participants is adapted and calibrated for generic use and then applied to UK bank data. Because the model is flexible and adaptable, it permits the robust investigation of different bank reactions to stressed market conditions, including buffer restoration, leverage targeting, the effect of severely stressed haircuts and systemic risk increases (through reputation degradation and enhanced contagion by other banks). Buffer losses owing to second-round effects are explored through reactions stemming from culprit and victim banks.
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Author's Biography
Gary Van Vuuren specialised in nuclear physics before moving into risk management at ABSA Bank and Old Mutual Asset Managers in South Africa. He moved to London in 2002 and worked as a risk manager in retail and investment banks before joining the Financial Institutions Group of Fitch Ratings in 2005. He is part of Fitch’s Special Projects Group which specialises in bank risk issues. He is also a visiting professor at the School of Management, University of the Free State, South Africa.
Citation
Van Vuuren, Gary (2011, December 1). Modelling systemic liquidity risk with feedback effects in the UK banking sector. In the Journal of Risk Management in Financial Institutions, Volume 5, Issue 1. https://doi.org/10.69554/NVNU4933.
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