Measuring Systemic Funding Liquidity Risk in the Russian Banking System

Abstract

The 2007−2009 global financial crisis demonstrated the need for effective systemic risk measurement and regulation. This paper proposes a straightforward approach for estimating the systemic funding liquidity risk in a banking system and identifying systemically critical banks. Focusing on the surplus of highly liquid assets above due payments, we find systemic funding liquidity risk can be expressed as the distance of the aggregate liquidity surplus from its current level to its critical value. Calculations are performed using simulated distribution of the aggregate liquidity surplus determined using Independent Component Analysis. The systemic importance of banks is then assessed based on their contribution to variation of the liquidity surplus in the system. We apply this methodology to the case of Russia, an emerging economy, to identify the current level of systemic funding liquidity risk and rank banks based on their systemic relevance.

Assessing the Russian Major Banks' Contribution to the Systemic Liquidity Risk Propagation in Banking

“…As mentioned above, the community lacks a clear understanding which tools would be appropriate for financial cycle phases. In Russia, the integrated regulatory authority maps risks and assigns indices to each of them [11][12][13][14].…”