Estimating liquidity risk using the exposure based cash flow at risk approach an application to the uk banking sector_accepted.pdf (392.68 kB)
Estimating liquidity risk using the exposure-based cash-flow-at-risk approach: an application to the UK banking sector
journal contribution
posted on 2017-03-01, 11:35 authored by Meilan YanMeilan Yan, Maximilian Hall, Paul TurnerThis paper uses a relatively new quantitative model for estimating UK banks’ liquidity risk. The model is called the exposure-based
cash-flow-at-risk (CFaR) model, which not only measures a bank’s liquidity risk tolerance but also helps to improve
liquidity risk management through the provision of additional risk exposure information. Using data for the period 1997–2010,
we provide evidence that there is variable funding pressure across the UK banking industry,which is forecasted to be slightly illiquid
with a small amount of expected cash outflow (i.e. £0.06 billion) in 2011. In our sample of the six biggest UK banks, only the HSBC
maintains positive CFaR with 95% confidence, which means that there is only a 5% chance that HSBC’s cash flow will drop below
£0.67 billion by the end of 2011. RBS is expected to face the largest liquidity risk with a 5% chance that the bank will face a cash
outflow that year in excess of £40.29 billion. Our estimates also suggest Lloyds TSB’s cash flow is the most volatile of the six
biggest UK banks, because it has the biggest deviation between its downside cash flow (i.e. CFaR) and expected cash flow.
History
School
- Business and Economics
Department
- Economics
Published in
International Journal of Finance and EconomicsVolume
19Issue
3Pages
225 - 238Citation
YAN, M., HALL, M. and TURNER, P., 2014. Estimating liquidity risk using the exposure-based cash-flow-at-risk approach: an application to the UK banking sector. International Journal of Finance and Economics, 19 (3), pp.225-238.Publisher
© John Wiley & SonsVersion
- AM (Accepted Manuscript)
Publisher statement
This is the peer reviewed version of the following article: YAN, M., HALL, M. and TURNER, P., 2014. Estimating liquidity risk using the exposure-based cash-flow-at-risk approach: an application to the UK banking sector. International Journal of Finance and Economics, 19 (3), pp.225-238, which has been published in final form at https://doi.org/10.1002/ijfe.1495. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.Acceptance date
2014-01-22Publication date
2014-03-14Copyright date
2014ISSN
1076-9307eISSN
1099-1158Publisher version
Language
- en