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SUMMARY:Measuring Systemic Illiquidity and Optimal Policy Options: A Dynam
 ic Approach - Ota\, T (Bank of England)
DTSTART:20140924T143000Z
DTEND:20140924T151500Z
UID:TALK54495@talks.cam.ac.uk
CONTACT:Mustapha Amrani
DESCRIPTION:Co-authors: Gerardo Ferrara (University of Turin)\, Sam Langfi
 eld (ECB)\, Zijun Liu (Bank of England) \n\nThis paper studies systemic li
 quidity risk in UK interbank system in a dynamic context. We estimate the 
 daily network structures of banks short-term funding (up to 30 days) with 
 various confidential datasets\, and identify (1) banks that fall short of 
 liquidity by themselves (individually illiquid banks)\; (2) banks that fal
 l short of liquidity because the counterparties fail to repay their debts 
 to the banks (systemically illiquid banks)\; and (3) the timing of these b
 anks falling short of liquidity. In order to consider the timing of defaul
 ts\, not only the number of defaults which normal contagion models focus o
 n\, we test a dynamic financial contagion model for the first time in the 
 literature. This dynamic feature is important particularly when we discuss
  liquidity regulations such as LCR. \n\nWe obtain outcomes by the numerica
 l simulations of the dynamic contagion model\, with assumptions consistent
  with PRAs micro-prudential liquidity monitoring schemes. The outcomes so 
 far show the existence of significant systemic liquidity risk when banks d
 o not have sufficient liquidity buffers. To the authors knowledge\, this i
 s the first paper in the literature studying interbank systemic liquidity 
 risk with real datasets. \n\nBased on the estimated systemic liquidity ris
 k\, we will consider the optimal liquidity provision policies to minimise 
 the systemic liquidity risk\, by solving a dynamic programming model. \n
LOCATION:Seminar Room 1\, Newton Institute
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