This dissertation presents a liquidity stress-testing model for evaluating liquidity and systemic
risk in banks from developed and emerging economies respectively. The model further
relies on simulations to generate liquidity buffer losses for both a non-crisis and crisis
period as well. The emerging economy is represented by South Africa (SA) and the developed
economy by the United Kingdom (henceforth UK). The Liquidity Stress Tester model
(LST) has been successfully applied to both the Dutch and UK markets in previous research.
The model's flexibility and adaptability allows it to assess different banking systems and different
reactions (buffer restoration and leverage targeting) of participants within these milieus.
The LST considers feedback effects arising from bank reactions and allows for the assessment
of severely stressed haircuts and systemic risk increases caused by reputation
degradation and increased contagion from other banks. Losses stemming from the second
round effects of a liquidity event are explored through the reactions conducted by banks in
the banking system.
The study conducts a review of liquidity risk models utilised in previous research. Characteristics
of these models and the data they used are highlighted, shedding light on the advantages
and shortcomings of these models. Possible restrictions in liquidity risk management
are also explored. The study discusses the relevance of the South African/UK economies'
comparison, as well as the selected periods chosen for investigation. To assist further
research with the LST, the study illustrates and discusses how it is modelled and developed
in Microsoft Office Excel.
The results obtained illustrate the potential severity of second round feedback effects of a
liquidity event on liquidity positions in banks. The effects of mitigating actions conducted by
banking institutions reacting to initial liquidity stress shocks are explored, as well as the way
these actions could potentially affect second round effects on banks. The analysis and discussion
of simulated results attempts to isolate and identify characteristics of economies
and periods used that may have contributed to specific liquidity events. The study concludes
with a summary of the research and suggestions for possible future work and development
using the LST. / MCom (Risk Management), North-West University, Potchefstroom Campus, 2013
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:nwu/oai:dspace.nwu.ac.za:10394/12216 |
| Date | January 2013 |
| Creators | Visser, Dirk |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Thesis |
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