Front Matter
  • 1 0000000404811396 Monetary Fund

Front Matter Page

Monetary and Capital Markets

Authorized for distribution by Laura Kodres


  • Abstract

  • I. Introduction

  • II. Systemic Liquidity

  • III. Modeling Steps and Data Requirements

  • IV. Model Calibration to the U.S. Financial Environment and the U.S. Banking System

    • A. The U.S. Financial and Economic Environment

    • B. Modeling Banks’ Assets, Liabilities and Income

    • C. Modeling Correlated Systemic Liquidity Risk

  • V. Results

  • VI. Summary, Conclusions, and Policy Recommendations

  • Tables

  • 1. Selected Liquidity Stress Testing (ST) Frameworks

  • 2. U.S. Financial and Economic Calibrations (1987–2006 and 2007–2010)

  • 3. Percentage Bank Failure Rates and Percentage Changes in Real Estate

  • 4. Distribution of Asset Sizes for U.S. bank failures

  • 5. Small Banks Balance Sheet (percent assets)

  • 6. Medium Banks Balance Sheet (percent assets)

  • 7. Large Banks Balance Sheet (percent assets)

  • 8. Mega Banks Balance Sheet (percent assets)

  • 9. Credit Quality of Committed and Outstanding Commercial and Industrial Loans

  • 10. Assumed Distribution of Initial Mortgage Loan to Value Ratios

  • 11. Withdrawal Rate Assumptions for Decline in Total Liabilities

  • 12. Simulated Capital Ratios For Banks using the 1987–2006 Financial Enviroment

  • 13. Simulated Capital Ratios For Banks using the 2007–2010 Financial Environment Calibration With No Inter-Bank Default Losses

  • 14. Simulated Capital Ratios For Banks using the 2007–2010 Financial Environment Calibration

  • 15. Correlations Among Incremental Bank Failures Due to Inter-Bank Default losses and Initial Bank Failures

  • 16. Distributional Analysis of Bank Probabilities of Default at T2 as Measured at T1

  • 17. Simulated Distribution of Total Solvency Plus Liquidity Induced Bank Failures

  • 18. Probability of Banks Having Liquidity Shortage (Negative Net Cash Flow), 2007–2010

  • 19. Simulated Percentage Reduction in Bank Loans after Liquidity Shock

  • 20. Additional equity capital required at T0

  • Figures

  • 1. Modeling Steps

  • 2. Average Corporate Bond Bid-Ask Spread

  • 3. Capital Ratios, 1987–2006 and 2007–2010, before Interbank Failures

  • 4. Net Cash Flows (after asset fire sales), 2007–2010

  • 5. Total Loan Reductions

  • Appendices

  • 1 Additional information on how the financial environment was simulated

  • 2. Calibration of asset haircuts in the context of fire sales of assets

  • References

Modeling Correlated Systemic Liquidity and Solvency Risks in a Financial Environment with Incomplete Information
Author: Miss Liliana B Schumacher and Mr. Theodore M. Barnhill