NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Liquidity Risk, Cash Flow Constraints, and Systemic Feedbacks

Sujit Kapadia, Matthias Drehmann, John Elliott, Gabriel Sterne

Chapter in NBER book Quantifying Systemic Risk (2013), Joseph G. Haubrich and Andrew W. Lo, editors (p. 29 - 61)
Conference held November 6, 2009
Published in January 2013 by University of Chicago Press
© 2013 by the National Bureau of Economic Research

This chapter develops a quantitative framework which shows how shocks to fundamentals may interact with funding liquidity risk and potentially generate contagion that can spread across the financial system. First, it introduces a “danger zone” approach to model how shocks affect individual banks' funding liquidity risk. Second, the chapter combines the danger zone approach with simple behavioral reactions to assess how liquidity crises can spread through the system. Last, using the RAMSI (Risk Assessment Model for Systemic Institutions) stress-testing model, it generates illustrative distributions for bank profitability to show how funding liquidity risk and associated contagion may exacerbate overall systemic risk and amplify distress during financial crises.

download in pdf format
   (1046 K)

email paper

This paper is available as PDF (1046 K) or via email.

This paper was revised on August 29, 2014

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.7208/chicago/9780226921969.003.0003

Commentary on this chapter: Comment, Mikhail V. Oet
Users who downloaded this chapter also downloaded these:
Duffey The Quantification of Systemic Risk and Stability: New Methods and Measures
Hu Systemic Risk and Financial Innovation: Toward a “Unified” Approach
Acharya, Pedersen, Philippon, and Richardson How to Calculate Systemic Risk Surcharges
Danielsson, Shin, and Zigrand Endogenous and Systemic Risk
Oet Comment on "Liquidity Risk, Cash Flow Constraints, and Systemic Feedbacks"
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us