Next Generation System-Wide Liquidity Stress Testing

by Christian Schmieder of the International Monetary Fund,
Heiko Hesse of the International Monetary Fund,
Benjamin Neudorfer of Oesterreichische Nationalbank,
Claus Puhr of Oesterreichische Nationalbank, and
Stefan W. Schmitz of Oesterreichische Nationalbank

January 2012

Abstract: A framework to run system-wide, balance sheet data-based liquidity stress tests is presented. The liquidity framework includes three elements: (a) a module to simulate the impact of bank run scenarios; (b) a module to assess risks arising from maturity transformation and rollover risks, implemented either in a simplified manner or as a fully-fledged cash flow-based approach; and (c) a framework to link liquidity and solvency risks. The framework also allows the simulation of how banks cope with upcoming regulatory changes (Basel III), and accommodates differences in data availability. A case study shows the impact of a "Lehman" type event for stylized banks.

JEL Classification: G10, G20, G21.

Keywords: Stress Testing, Liquidity Risk, Basel III.

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