Dissertations / Theses on the topic 'Liquidity funding risk'

Funding liquidity risk was one of the main reasons for bank failure during the global financial crisis in 2007-2008. New legislation has been released in the form of Basel III, in particular the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR), to strengthen the liquidity requirements for banks; this makes funding liquidity a very important topic for banks. In this thesis, I will study the important factors that need to be taken into consideration when dealing with liquidity risk and how a bank can manage their funding liquidity risk. A key concept used in banks is Fund Transfer Pricing (FTP). This approach helps the banks to manage their interest rate risk. I will investigate how funding liquidity risk can be incorporated into this framework. It is important that this approach will still maximise the bank's overall profits. In order to achieve this I will initially evaluate a one time period model. This shows whether the bank's overall profits can be optimised using FTP. My results show that it is possible to allow each business unit to work independently and that, by using FTP, individual business units can be optimised consistently with the bank's overall profits. However, for this to occur, it is important to decide whether a bank is deposit rich or deposit poor as an incorrect assumption will lead to sub-optimal profits for the bank. Banks work in more than 1 time period; therefore, I will assess how the model can be extended and how FTP would work over multiple time periods. One major consideration is to account for the uncertainty regarding the timing of cash flows. This is because customers often have the option to prepay loans or withdraw their deposits. I will investigate an approach for calculating the cost of these options and how this can be included in the FTP framework. By applying a cost to the uncertainty, we can insure that the business units are incentivised in the correct way while still maximising the profits of the bank. Under my approach the treasury unit will be exposed to actual events in return for receiving a fair value for the cost of the option. The business units will be charged the cost of the option. There is potential for one party to act in their own interest by changing the value of the option. However, as both parties need to agree, this risk should be removed over time. I have shown how this can be done over 2 time periods but further research is needed to investigate over more time periods.

Most emerging markets are faced with the predicament of a misalignment, or mismatch, of assets and liabilities in the banking sector where long-term assets are funded by short-term deposits. The South African (SA) banking sector also faces a challenge regarding the composition of the short-term deposits that fund these assets. The large and unstable wholesale funds dominate the funding side of local banks' balance sheets, particularly in the short-term bucket. The danger with wholesale funds arises when they are withdrawn unexpectedly, due to either perceived or realised risk. Due to their bulk, the wholesale funds have the potential to create a funding liquidity risk crisis in a bank. Most banks are unlikely to match these types of withdrawals, and will therefore have a forced asset fire sale to fund them. Retail funds do not face this danger, as it is highly unlikely, in normal market conditions, which many retail depositors would want to withdraw all their funds at the same time. Furthermore, retail funds are a cheaper source of funding compared to wholesale funds, thus making them a bank's preferred source of funding. In as much as they are a preferred source of funding, in the SA banking system retail deposits are very low compared to wholesale funding. This research study explores the funding liquidity risk and the predicament that exists in the SA banking industry by highlighting its main sources, and providing recommendations on how it can be addressed. This is achieved by testing the relationship between the ratio of retail funding to total bank funding (ROBF) and five explanatory variables, namely: household saving rates; retail deposit rates; corporate saving rates; wholesale deposit rates; and the Johannesburg Stock Exchange (JSE) All Share Index, with the aid of the multiple regression analysis method. The regression analysis was performed on data collected between 2002 and 2011. The research established that household saving rates and retail deposit rates were predictors that were statistically significant in explaining the movement in the ratio of retail funding to total funding.

Liquidity transformation is a pre-eminent function of the banking system. By utilising at-call deposits to fund long-term and illiquid loans, and by making funds available to depositors and borrowers upon demand, banks contribute to economic welfare. However, liquidity transformation exposes banks to significant risks. As banks do not choose to hold socially optimal liquidity exposures on their own, bank regulations are an important tool for enhancing the safety of individual banks and improving the stability of the financial system. This thesis sheds new light on the causes of liquidity risk by examining the supervisory liquidity risk ratings of Australian deposit-taking institutions. It is shown that liquidity risk ratings are predictable and that the Basel III liquidity regulations are likely to reduce risk in the banking system. By conducting the first microeconomic cost-benefit analysis of the Basel III liquidity standards, this thesis also illustrates that the liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) have net social benefits under a range of reasonable assumptions. This is particularly important as past macroeconomic cost-benefit analyses of Basel III liquidity standards are shown to be misspecified and potentially spurious. JEL Classification: G28, G21

Cette thèse s'inscrit dans le contexte d'après crises des subprimes et des dettes souveraines européennes. Il s'agit de périodes durant lesquelles les banques, en particulier dans la zone Euro et aux Etats-Unis, ont fait face à un assèchement de liquidité sans précédent ayant paralysé le système bancaire et conduit à la faillite de banques dont certaines solvables. La thèse cherche à répondre à la problématique suivante : Quelles sont les raisons du dysfonctionnement de deux canaux importants d'approvisionnement en liquidité par les banques, à savoir, le marché des actifs et surtout le marché monétaire interbancaire ? L'objectif est d'avoir un cadre d'analyse qui permet d'évaluer les propositions de la réglementation Bâle III en matière de contrôle du risque de liquidité dans les banques et d'éclairer les réflexions autour de la supervision bancaire. La première étude empirique est consacrée aux interactions entre le risque de liquidité de financement et le risque de liquidité de marché en situation de crise. Elle confirme bien la présence d'un renforcement mutuel entre ces deux types de risque dans les cas américain et européen durant la période allant de 2007 à 2011. La deuxième étude empirique se focalise sur le dysfonctionnement du marché monétaire interbancaire dans la zone Euro durant la même période en identifiant les motifs de la thésaurisation de liquidité par les banques, à savoir, le risque de contrepartie, le motif de précaution et le motif de spéculation. Les résultats montrent bien qu'il y a une relation significativement positive entre ces trois facteurs et la thésaurisation. Enfin, la troisième étude met l'accent sur les conséquences de la thésaurisation en termes de contagion interbancaire et de risque systémique. Les résultats confirment en effet l'impact de la thésaurisation sur le risque systémique dans la zone Euro
During the U.S subprimes and the European sovereign debt crisis, banks faced with an unprecedent liquidity drying-up, leading to a banking system paralysis and failures of banks (including some solvable banks), in particular in United States and Euro zone. This dissertation seeks to answer the following question: what are the reasons of dysfunction of two important channels of liquidity supply of banks, namely, asset market and interbank money market? The aim is to have an analysis framework in order to evaluate banking regulations issued by Basel III and to enlighten reflections about banking supervision. The first empirical study examines the interactions between funding liquidity risk and market liquidity risk. Its results confirm that these two risk types are mutually reinforcing in American and European cases during the period between 2007 and 2011. The second empirical study focuses on the failure of the interbank market in Euro zone during the same period by identifying the motives behind the bank liquidity hoarding, namely, counterparty risk, precautionary motive and speculative motive. The results show that there is a significantly positive relation between these three factors and the liquidity hoarding. Finally, the third empirical study illustrates the repercussions of this phenomenon on systemic risk. The results confirm the impact of liquidity hoarding on systemic risk in Euro zone

Cette thèse étudie les conditions d’accès des banques européennes au financement interbancaire non sécurisé entre 2006 et 2012. Elle contient trois essais empiriques explorant des micro-données relatives aux transactions interbancaires. La première étude empirique adopte une approche en termes de paires banque prêteuse/banque emprunteuse et montre que, une fois le risque de contrepartie et les imperfections de marché contrôlées, les banques ayant un risque de liquidité plus élevé paient une prime de taux d’intérêt. Nous montrons également que cette prime est augmentée par les banques disposant d’excès de liquidités, sans doute motivées par la thésaurisation ou des stratégies de “short-squeezing” des banques en besoin de liquidité. Cette étude souligne finalement l’imperfection du marché interbancaire et l’importance des diverses interventions de la BCE qui ont cherché à réduire le risque de liquidité des banques au cours de la crise. La seconde étude, par le biais d’un model 2P-FRM, explore empiriquement l’impact des relations de clientèle entre banques sur la structure de maturité de la dette interbancaire. Les résultats dévoilent que l’accès aux prêts interbancaires longs et non sécurisés est facilité par les relations durables avant et durant les périodes de stress. Cependant, lors des moments aigus de la crise suivant la chute de la banque Lehman, ces effets positifs des variables bilatérales de relations fortes, calculées comme la concentration des actifs sur une banque emprunteuse, ne sont pas là. La deuxième partie de notre modèle montre que la part en volume des crédits à terme est plus faible pour les couples de banques partenaires. Finalement, notre variable unilatérale de relation interbancaire, qui mesure la concentration du réseau d’emprunt de la banque prêteuse, s’avère impacter négativement les prêts à terme post-Lehman. Cela confirme l’hypothèse que le propre risque de refinancement court du prêteur peut être l’origine du gel post-Lehman des prêts interbancaires à terme. Finalement, le troisième essai explore le lien entre la segmentation du marché interbancaire et le noeud de corrélation des risques souverains/bancaires. En utilisant les changements des primes des CDS souverains et bancaires, nous proposons une mesure originale de corrélation partielle des spillovers souverains-banques, qui permet d’attribuer une direction pays-banques à la contagion. Les résultats montrent que ces spillovers accentuent la segmentation du marché monétaire Italien lors de la phase critique de la crise des dettes souveraines. De plus, l’étude montre que, même si l’impact pays d’origine/banques est important, la contagion venant d’autres souverains en crise est loin d’être négligeable
This thesis studies European banks’ terms to access to unsecured interbank funding during the period 2006 to 2012. It contains three empirical essays exploring micro-data on interbank transactions. The first empirical study adopts a bank pair panel approach evidencing that, once counterparty risk and other market imperfections are controlled for, banks with higher funding liquidity risk (liquidity-short banks) pay an interest rate premium. The bank pair level analysis also permits to show that this premium is charged by liquidity-long banks, probably motivated by strategic short-squeezing or prudential hoarding purposes during the crisis. This study emphasizes the imperfection of interbank markets and the importance of theECB’s emergency interventions dedicated to dampening banks’ funding risk concerns. The second essay explores empirically the impact of relationship lending on the interbank debt maturity structure of banks by mean of a two-part fractional response model. The findings show that durable bilateral liquidity partnerships can positively impact the probability of contracting term loans before and during periods of acute stress. The positive effects of the bilateral relationship lending variable measured as asset-side concentration, is however, not straightforward, especially after the Lehman default. The second part of our model shows that the post-Lehman maturity shift is pronounced for partner banks. Finally, we find that our unilateral (lender level) relationship variable impacts negatively long term lending confirming the rollover risk viewpoint of the term interbank market freeze. Finally, the third essay investigates the link between interbank market segmentation and bank–sovereign risk nexus. Using bank and country CDS spread changes it suggests an original partial correlation based measurement of sovereign/bank spillovers providing us with a direction of contagion. Empirical findings from this part of the thesis evidence that bank-sovereign risk correlation is a significant source of fragmentation during the most acute phase of the sovereign debt crisis. Moreover, the study shows that, even if home country/bank ties impact seriously interbank market integration, the risk from other distressed countries is far from negligible

As the events of the 2007 Crisis unfolded, it was clear that the failure or even rumors about the failure of one single institution could trigger freezes in numerous capital markets and widespread default in other financial institutions. How this was brought about, however, was everything but clear. Ten years later, as we stand today, the literature has progressed but many questions remain unresolved. The first question at hand is of course how banks were related and how these bilateral relationships were able to act as a passage of contagion. On the liability side, borrowing between banks provides liquidity insurance against their idiosyncratic shocks. In bad times however, insurance networks malfunctioned, and more centrally connected banks were able to monopolize on their market power to secure a larger surplus in the scramble for liquidity. My first paper further explores the relationship between network position and the ability to hoard liquidity. In addition, assets on bank balance comprise another important channel of contagion and one should ask to which extent cross holding of asset portfolios is optimal. When does the benefit from diversification over idiosyncratic risks dominate? And when does market risk increase systemic risk of common portfolio holdings? The second essay analyzes these questions from the perspectives of private and social welfare. In the end, one must also wonder how these networks were formed at the beginning and how the endogenous formation correlates with the structural implications. The third paper takes a step back and begins with a world where banks optimally choose links, prices and the amounts of trade. This endogenously determined network structure then serves as a coherent laboratory for understanding various frictions in the interbank market such as market freezes. Financial networks are complex and so is the research about them. Hence, in this thesis, I have attempted to shed light on them from various angles, utilizing both bilateral network data as well as theoretical analytical tools. It is my hope that taken together, this set of essays can contribute to a holistic understanding of interconnectedness in financial market.

This thesis assesses UK banking liquidity regulation and supervision and the Basel liquidity requirements, and models banks' liquidity risk. The study reveals that the FSA's risk-assessment framework before 2008 was too general without specifically considering banks' liquidity risk (as well as its failures on Northern Rock). The study also lists the limitations of the FSA's banking liquidity regimes before 2008. The thesis reviews whether the FSA's new liquidity regimes after 2008 would have coped with UK banks' liquidity risks if they have been applied properly. The fundamental changes in the FSA's liquidity supervision reflect three considerations. First, it introduces a systemic control requirement by measuring individual fifirm's liquidity risk with a market-wide stress or combination of idiosyncratic and market-wide stresses. Second, it emphasizes the monitoring of business model risks and the capability of senior managers. Third, it allows both internal and external managers to access more information by increasing the liquidity reporting frequencies. The thesis also comments on the Basel Liquidity Principles of 2008 and the two Liquidity Standards. The Principles of 2008 represents a substantial revision of the Principles of 2000 and reflect the lessons of the fifinancial market turmoil since 2007. The study argues that the implementation of the sound principles by banks and supervisors should be fexible, but also need to be consistent to make sure they understand banks' liquidity positions quite well. The study also explains the composition of the Basel liquidity ratios as well as the side effect of Basel liquidity standards; for example, it will reshape interbank deposit markets and bond markets as a result of the increase in demand for `liquid assets' and `stable funding'. This thesis uses quantitative balance sheet liquidity analysis, based upon modified versions of the BCBS (2010b) and Moody's (2001) models, to estimate eight UK banks' short and long-term liquidity positions from 2005 to 2010 respectively. The study shows that only Barclays Bank remained liquid on a short-term basis throughout the sample period (2005-2010); while the HSBC Bank also proved liquid on a short-term basis, although not in 2008 and 2010. On a long-term basis, RBS has remained liquid since 2008 after receiving government support; while Santander UK also proved liquid, except in 2009. The other banks,especially Natwest, are shown to have faced challenging conditions, on both a short-term and long-term basis, over the sample period. This thesis also uses the Exposure-Based Cash-Flow-at-Risk (CFaR) model to forecast UK banks' liquidity risk. Based on annual data over the period 1997 to 2010, the study predicts that by the end of 2011, the (102) UK banks' average CFaR at the 95% confidence level will be -£5.76 billion, Barclays Bank's (Barclays') CFaR will be -£0.34 billion, the Royal Bank of Scotland's (RBS's) CFaR will be -£40.29 billion, HSBC Bank's (HSBC's) CFaR will be £0.67 billion, Lloyds TSB Bank's (Lloyds TSB's) CFaR will be -£4.90 billion, National Westminister Bank's (Natwest's) CFaR will be -£10.38 billion, and Nationwide Building Society's (Nationwide's) CFaR will be -£0.72 billion. Moreover, it is clear that Lloyds TSB and Natwest are associated with the largest risk, according to the biggest percentage difference between downside cash flow and expected cash flow (3600% and 816% respectively). Since I summarize a bank's liquidity risk exposure in a single number (CFaR), which is the maximum shortfall given the targeted probability level, it can be directly compared to the bank's risk tolerance and used to guide corporate risk management decisions. Finally, this thesis estimates the long-term United Kingdom economic impact of the Basel III capital and liquidity requirements. Using quarterly data over the period 1997:q1 to 2010:q2, the study employs a non-linear-in-factor probit model to show increases in bank capital and liquidity would reduce the probability of a bank crisis significantly. The study estimates the long-run cost of the Basel III requirements with a Vector Error Correction Model (VECM), which shows holding higher capital and liquidity would reduce output by a small amount but increase bank profitability in the long run. The maximum temporary net benefit and permanent net benefit is shown to be 1.284% and 35.484% of pre-crisis GDP respectively when the tangible common equity ratio stays at 10%. Assuming all UK banks also meet the Basel III long-term liquidity requirements, the temporary net benefit and permanent net benefit will be 0.347% and 14.318% of pre-crisis GDP respectively. Therefore, the results suggest that, in terms of the impact on output, there is considerable room to further tighten capital and liquidity requirements, while still providing positive effects for the United Kingdom economy.

In the first essay, I create a hedge fund informed trading measure (ITM) that separates information related trades from liquidity driven trades. The results indicate that ITM predicts future stock returns at the trade level, thus is associated with information. By aggregating the most informed trades at the stock level, I find that stocks heavily purchased by informed hedge funds earn a significant alpha. The results indicate that the ITM performs better than some previously documented measures and is robust to two different versions of the measure. The second essay exploits the expiring nature of hedge fund lockups to create a new, within-fund proxy of funding liquidity risk. When funds have lower funding liquidity risk, risk-adjusted performance improves and exposure to tail risk increases. We use fund fixed-effect, a placebo approach, and a regression discontinuity design to establish a link between funding liquidity risk and the ability of funds to capitalize on risky mispricing. The third essay explores hedge fund managers ability to identify and trade on stock mispricing opportunity. We refer to the amount of capital that are is locked up and refrained from redemption as the stable capital, and study how it affects stock mispricing. We find that when funds have more lockup capital, they are more likely to take mispricing risks. Taking all funds together, more stable capital in the industry is driving the reduction or even correction of market-wide stock mispricing. Underpriced stocks benefit more than overpriced stock from hedge funds stable capital.

The subprime mortgage crisis (SMC) is an ongoing housing and nancial crisis that was triggered by a marked increase in mortgage delinquencies and foreclosures in the U.S. It has had major adverse consequences for banks and nancial markets around the globe since it became apparent in 2007. In our research, we examine an originator's (OR's) nonlinear stochastic optimal control problem related to choices regarding deposit inflow rates and marketable securities allocation. Here, the primary aim is to minimize liquidity risk, more speci cally, funding and credit crunch risk. In this regard, we consider two reference processes, namely, the deposit reference process and the residential mortgage loan (RML) reference process. This enables us to specify optimal deposit inflows as well as optimal marketable securities allocation by using actuarial cost methods to establish an ideal level of subprime RML extension. In our research, relationships are established in order to construct a stochastic continuous-time banking model to determine a solution for this optimal control problem which is driven by geometric Brownian motion. In this regard, the main issues to be addressed in this dissertation are discussed in Chapters 2 and 3. In Chapter 2, we investigate uncertain banking behavior. In this regard, we consider continuous-time stochastic models for OR's assets, liabilities, capital, balance sheet as well as its reference processes and give a description of their dynamics for each stochastic model as well as the dynamics of OR's stylized balance sheet. In this chapter, we consider RML and deposit reference processes which will serve as leading indicators in order to establish a desirable level of subprime RMLs to be extended at the end of the risk horizon. Chapter 3 states the main results that pertain to the role of stochastic optimal control in OR's risk management in Theorem 2.5.1 and Corollary 2.5.2. Prior to the stochastic control problem, we discuss an OR's risk factors, the stochastic dynamics of marketable securities as well as the RML nancing spread method regarding an OR. Optimal portfolio choices are made regarding deposit and marketable securities inflow rates given by Theorem 3.4.1 in order to obtain the ideal RML extension level. We construct the stochastic continuoustime model to determine a solution for this optimal control problem to obtain the optimal marketable securities allocation and deposit inflow rate to ensure OR's stability and security. According to this, a spread method of RML financing is imposed with an existence condition given by Lemma 3.3.2. A numerical example is given in Section 3.5 to illustrates the main issues raised in our research.
Thesis (M.Sc. (Applied Mathematics))--North-West University, Potchefstroom Campus, 2011.

Cette thèse comprend trois essais empiriques fondés sur des données de banques commerciales américaines. Elle vise à mettre en évidence les implications du risque de liquidité et de la comptabilisation à la juste valeur sur la structure du capital, les prêts et la stabilité des banques. Ainsi, le premier chapitre examine si les épisodes de pénurie de liquidité sur le marché influencent l'ajustement de la structure du capital des banques. Les résultats révèlent que seules les petites banques réagissent à de tels épisodes en augmentant leur ratio de capital. Pour ce faire, elles réduisent la part des prêts dans le total de l’actif, diminuent la part des actifs ayant une pondération de risque plus élevée et réduisent la taille de leur bilan. Ces résultats donnent à penser que les exigences en matière de liquidité pourraient être redondantes pour les petites banques, mais semblent nécessaires pour les grandes banques. Le deuxième chapitre analyse si l’impact d'un flux inattendu de dépôts sur la création de prêts dépend du degré d'exposition des banques au risque de liquidité provenant du hors bilan. Les résultats montrent que seules les petites banques augmentent leurs prêts lorsqu'elles sont soumises à des entrées de dépôts imprévues. Cette augmentation des prêts dépend de leur degré d'exposition au risque de liquidité découlant de leurs activités de hors bilan. Les petites banques plus exposées à ce risque de liquidité ont tendance à accorder moins de nouveaux prêts. Ces résultats indiquent que les entrées inattendues de dépôts pourraient ne pas être aussi facilement redistribuées aux emprunteurs. Le troisième chapitre examine l'effet des actifs de niveau 2 et de niveau 3 détenus par les banques sur la prise de risque et le risque d'insolvabilité. Les résultats révèlent que les banques ayant des proportions plus importantes d'actifs de niveau 2 et de niveau 3 prennent des risques plus élevés et sont plus exposées au risque d'insolvabilité. Ces résultats suggèrent que le système bancaire pourrait devenir plus fragile lorsque les investisseurs perçoivent des problèmes de fiabilité au niveau des actifs bancaires
This thesis comprises three empirical essays based on U.S. commercial banks’ data. It aims to highlight the implications of liquidity risk and fair value accounting on banks’ capital structure, lending and their stability. Thus, the first chapter investigates if episodes of liquidity squeeze on the market affect banks’ capital structure adjustment. The findings reveal that only small banks react to such episodes by increasing their capital ratio. To do so, they reduce the share of loans in total assets, decrease the share of assets with higher risk weights and they downsize their overall balance sheets. These results suggest that liquidity requirements might be redundant for small banks but appear to be necessary for large banks. The second chapter analyses whether the impact of an unexpected flow of deposits on loan origination depends upon the degree of banks’ off-balance sheet funding liquidity risk exposure. The results show that only small banks increase their lending when they are subject to unexpected deposit inflows. The increase in lending depends on how much they are exposed to funding liquidity risk stemming from their off-balance sheets. Small banks more exposed to such funding liquidity risk tend to extend fewer new loans. These results indicate that unexpected deposit inflows might not as easily be fueled again to borrowers. The third chapter examines the effect of banks’ holdings of Level 2 and Level 3 fair value assets on risk-taking and insolvency risk. The results reveal that banks with larger proportions of Level 2 and Level 3 fair value assets take on higher risk and are more exposed to insolvency risk. These findings suggest that the banking system may become more fragile when investors perceive reliability concerns in banks’ assets

Дипломна робота присвячена дослідженню теоретичних та практичних засад управління ризиком ліквідності у міжнародних банках в умовах регулювання Базелю ІІІ. Проведено аналіз підходів до управління ризиком ліквідності у міжнародних банках та виявлено слабкі місця в організації ризик-менеджменту банків. Визначено основні напрями удосконалення механізму управління ризиком ліквідності у міжнародних банках із врахуванням положень Базелю ІІІ. The master’s thesis focuses on studying theoretical and practical foundations of liquidity risk management in international banks in the context of Basel III regulation. The liquidity risk management framework in international banks is analyzed and the weaknesses of risk management organization of banks are defined. The main directions of improving liquidity risk management framework in international banks with regard to Basel III guidelines are defined.

碩士
國立中央大學
財務金融學系
105
The 2007-2008 global financial crisis revealed weakness in the funding liquidity management in financial institutions. In 2010, the Basel Committee on Banking Supervision (BCBS) introduced the net stable funding ratio (NSFR) to promote sustainable funding structures in the new Basel III. This study consider NSFR as the proxy for funding liquidity risk, and the objective of this study is to investigate the impact of funding liquidity risk on bank risk taking and performance. Furthermore, we analyze the interaction effect of NSFR with China’s banking organizations and NSFR with the crisis period on banks’ risk and performance. Using quarterly data for China’s commercial banks from 2007 to 2015, our results show that NSFR is not significantly related to risk measures. However, banks having lower funding liquidity risk as proxied by higher NSFR, exhibit higher risk-adjusted performance. And the relationship between NSFR and performance does not vary with different china’s banking organizations and during the financial crisis period. Moreover, we find that Q index introduced by Schnytzer and Westreich (2013), compared to the standard deviation of bank stock returns, better captures banks’ overall risk.

Research Doctorate - Doctorate of Business Administration (DBA)
Government mandated institutions in Australia and Canada have continuously progressed banking regulation throughout time by making gradual alterations to prudential frameworks and supervisory practices. This has included the prompt domestic adaptation of the three Basel accords. A main objective is to ensure banking organisations become more resilient to stresses that impact their capital and liquidity adequacy. Banking organisations are faced with the task of transforming their balance sheets and funding profiles to not only strengthen their balance sheets but to curb heighted liquidity costs that have been brought on by regulatory reform. A review of existing literature on the components of bank funding, liquidity and procyclicality recognises their significance in ensuring individual bank stability and the prevarication of broader systemic implications in the wider economy. This dissertation has examined the historical evolution of the regulatory environments in both Australia and Canada and compared the components of bank balance sheets that offer insights into their funding preference and liquidity holdings, and provide early indicators for procyclicality within the banking sector. It has also had the goal of developing existing research and knowledge of liquidity stresses within bank balance sheets. This research has endeavoured to further balance sheet innovation, through action research that has been carried out over a five year period, to provide banking organisations with options to alter their balance sheets in order to meet the Basel III package of reforms and better deal with liquidity pressures, such as those that were evident in many countries throughout the most recent financial crisis. A new methodology for balance sheet transformation under Basel III, “evergreen” is articulated, with a suite of evergreen asset and liability products and balance sheet exposures being assessed for impact and acceptance within the banking industry. Verification of the evergreen method is demonstrated by the banking industry including it within their strategy for future balance sheet innovation; banks designing and constructing evergreen capability; the regulator encompassing it within prudential standards; and widespread acceptance of evergreen by investors and other financial market participants. Whilst components of evergreen are increasingly becoming a greater part of the banking industry within Australia, it is recognised that the concepts and models of evergreen, are at a primary juncture in their development and require substantial additional focus and research. The usefulness of this dissertation will be established through the particulars of future research settings and must be appraised to the degree that it appears correct, original and apt. Regarding deposits, this dissertation finds that: the existence of voluntary deposit insurance schemes would allow the competitive landscape for retail deposits to become about more than just price; operational deposits are not immune from procyclical competition; Australian banks have a much greater appetite and tolerance for at-call deposit raising; liquidity regulation has permanently shifted the ‘market rate’ for deposit funding above its ‘natural rate’; and foreign currency deposit raising may lead to banks running unhedged positions or developing a larger reliance towards United States Dollars. For wholesale funding, it is observed that: liquidity regulation has increased the reliance of banks on domestic financial markets to fulfil their financing needs; the volume of short-dated prime bank paper being issued in Australia has declined where there are consequences for the Bank Bill Swap Rates; and large differentials in the semi/quarterly spread can substantially impact the profitability of banking book products. The domestic implementation of the Basel III package of reforms on liquidity in both Australia and Canada has, in many ways, imitated the historical approach taken towards bank capital regulation. This dissertation deducts that, as there is for capital, the concept of ‘regulatory’ and ’economic’ liquidity now exists. Furthermore, regulation has introduced a predisposition to government bonds, which may have unintended consequences for both government sponsored issuers and bank investors. Finally, procyclicality must be monitored and managed by the government sponsored institution tasked with the role of implementing monetary policy, rather than institutions that implement and enforce prudential regulation.

碩士
國立成功大學
財務金融研究所
105
This paper examines the relationship between funding liquidity risk and bank risk-taking. We use quarterly basis data of Taiwan banking industry from 2005 to 2016 to test this relationship. The result shows that banks with higher liquidity risk as proxied by lower deposits, banks will less likely take more risk. Besides, we also find that banks with high capital buffer tend to take more risk when facing lower funding liquidity risk. In addition, during the Global Financial Crisis, banks are less likely to take more risk even the funding liquidity risk is low. However, we find that bank size will mitigate the effect that banks will take more risky investments when the funding liquidity risk is low.

碩士
東吳大學
企業管理學系
107
This study examines the relationship between funding liquidity and bank risk taking. The sample data is based on the semi-annual report data for 36 banks in Taiwan from 2009 to 2018 first half year. We use panel data regression model method to measure and analyze. The empricial results show that banks having lower funding liquidity risk as proxied by higher deposit ratios will not take more risk. There is a positive relationship between financing liquidity risk and bank risk taking. However, our results show that banks with high capital buffer and larger size will not reduce bank risk when they have lower funding liquidity risk. Moreover, during the Global Financial Crisis, the impact of funding liquidity risk and bank risk is not significant.

This study examined the determinants of commercial bank liquidity in South Africa. The panel regression approach was used, applying panel data from twelve commercial banks over the period 2006 to 2016. A quantitative research method was used to investigate the relationship between bank liquidity and some microeconomic and bank-specific factors and between bank liquidity and selected macro-economic factors. The regression analysis for four liquidity ratios was conducted using the pooled ordinary least squares regression, fixed effects, random effects and the generalised methods of moments. However, the system generalised methods of moments approach was preferred over the other methods because it eliminated the problem of endogeneity. Results show that capital adequacy, size and gross domestic product have a positive and significant effect on liquidity. Loan growth and non-performing loans had a negative and significant effect on liquidity. Inflation had both a positive and a negative but an insignificant effect on liquidity. The study concluded that South African banks could enhance their liquidity positions by tightening their loan-underwriting criteria and credit policies. Banks should improve their credit risk management frameworks to be more prudent in their lending practices to improve the quality of the loan book to enhance liquidity. They also need to grow their capital levels by embarking on efficient revenue enhancements activities. Banks may also to look at their clients on an overall basis and not on transaction bases, and they need to improve non-interest revenue by introducing innovated products. The South African Reserve Bank could push for policies that might enhance capitalisation by ensuring that the sector is consolidated and thus merging smaller banks to create banks with stronger balance sheets and stronger capital base. This study contributes to the empirical research repository on the determinants of liquidity and more specifically, it identified the significant factors that affect South African commercial bank liquidity. Identifying the determinants of South African commercial bank liquidity will provide the South African Reserve Bank with insight into ways of enhancing liquidity management reforms, to improve the sector’s liquidity management practices and help to maintain a sound and liquid banking sector.
Business Management
M. Com. (Business Management)

The correct measure and definition of liquidity in finance literature remains an unresolved empirical issue. The main objective of the present study was to develop, validate and test the liquidity mismatch index (LMI) developed by Brunnermeier, Krishnamurthy and Gorton (2012) empirically. Building on the work of these prior studies, the study undertook to develop a measure of liquidity that integrates both market liquidity and funding liquidity within a context of asset liability management. Liquidity mismatch indices were developed and then tested empirically to validate them by regressing them against the known determinants of liquidity. Furthermore, the study investigated the nexus between liquidity and profitability. The unit of analysis was a panel of 12 South African banks over the period 2005–2015. The study developed two liquidity measures – the bank liquidity mismatch index (BLMI) and the aggregate liquidity mismatch index (ALMI) – whose performances were compared to and contrasted with the Basel III liquidity measures and traditional liquidity measures using a generalised method of moments (GMM) model. Overall, the two constructed liquidity indices performed better than other liquidity measures. Significantly, the ALMI provided a better macro-prudential liquidity measure that can be utilised in dynamic stochastic general equilibrium (DSGE) models, thus presenting a major contribution to the body of knowledge. Unlike the LMI, the BLMI and ALMI can be used to evaluate the liquidity of a given bank under liquidity stress events, which are scaled by theoretically motivated and empirically supported liquidity weights. The constructed BLMI contains information regarding the liquidity risk within the context of asset liability mismatches, and the measure used comprehensive data from bank balance sheets and from financial market measures. The newly developed liquidity measures are based on portfolio management theory as they account for the significance of liquidity spirals. Empirical results show that banks increase their liquidity buffers during times of turmoil as both BLMI and ALMI improved during the period 2007–2009. Subsequently, the improvement in economic performance resulted in a rise in ALMI but a decrease in BLMI. We found no evidence to support the theory that banks, which heavily depend on external funding, end up in serious liquidity problems. The findings imply that any policy implemented with the intention of increasing bank capital is good for bank liquidity since the financial fragility–crowding-out hypothesis is outweighed by the risk absorption hypothesis because the relationship between capital and bank liquidity is positive.
Finance, Risk Management and Banking
D. Phil. (Management Studies)