Sketching a roadmap for systemic liquidity stress tests
Abstract
This paper aims to identify and specify guiding principles for designing and implementing a systemic liquidity stress test (SLST), a necessary complement to more standard, and by now systemic, solvency stress tests. The paper focusses on the types of data and models that would be ideally required. We also illustrate with a concrete example how to operationalise these principles for a system of European banks. The paper will then provide practical guidelines for policymakers and analysts building an SLST set-up or process, with a view to assessing liquidity risks and to understanding shock propagations in a complex financial system. Both elements are specifically relevant to macroprudential authorities.
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Author's Biography
Grzegorz Hałaj works for the European Central Bank (ECB) as a financial stability expert dealing with stress testing issues and financial contagion modelling and assessment. Previously he worked in the asset and liability management (ALM) office of a private bank and as a researcher in financial mathematics and in systemic risk studies at the Warsaw School of Economics, CORE in Louvain-la-Neuve, King’s College in London and the Fields Institute in Toronto. He holds a PhD in financial mathematics.
Jérôme Henry is Principal Adviser in the European Central Bank (ECB) DG for macroprudential policies and financial stability. His tasks relate to stresstesting infrastructure and financial stability assessments. He has led the stress-test quality assurance of the ECB/Single Supervisory Mechanism (SSM) Comprehensive Assessment. He is also active in various ECB, European Systemic Risk Board (ESRB) and European Banking Authority (EBA) fora. Mr Henry has published his research in a number of international journals, such as the IMF Staff Papers, Econometrics Journal, Economic Modelling, Journal of Economic Dynamics and Control, Economic Letters, Review of Economics and Statistics, Annales d’Economie et de Statistique, as well as in books with Elsevier, Cambridge University Press, Routledge and Economica. He is also a founding member of the Centre for Economic Policy Research (CEPR) Euro-Area Business Cycle Network (EABCN). Mr Henry is a graduate from the Ecole Nationale de la Statistique et de l’Administration Economique (ENSAE) and holds a PhD in economics from the University of Paris Panthéon-Sorbonne and a diploma in history from the University of Paris Sorbonne.
Citation
Hałaj, Grzegorz and Henry, Jérôme (2017, October 1). Sketching a roadmap for systemic liquidity stress tests. In the Journal of Risk Management in Financial Institutions, Volume 10, Issue 4. https://doi.org/10.69554/KUYX9793.
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