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Sketching a roadmap for systemic liquidity stress tests

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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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Keywords: contagion; liquidity; macroprudential; network; stress-test; systemic risk

Document Type: Research Article

Publication date: October 1, 2017

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  • Journal of Risk Management in Financial Institutions is the essential professional and research journal for all those involved in the management of risk at retail and investment banks, investment managers, broker-dealers, hedge funds, exchanges, central banks, financial regulators and depositories, as well as service providers, advisers, researchers and academics. Guided by expert Editors and an eminent Editorial Board, each quarterly 100-page issue does not publish advertising but rather in-depth articles, reviews and applied research by leading professionals and researchers in the field on six key inter-related areas: strategic and business risk, financial risk, including traditional/exotic credit, market and liquidity risks, operational risk, regulatory and legal risks, systemic risk, and sovereign risk.

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