Systemic liquidity risk index for a banking system

Abstract

Liquidity risk and liquidity risk management is a very interesting topic for bank managers, policy makers as

well as researchers. If a bank faces liquidity risk and the central bank does not support it in time, a banking

system would be at risk because of its interconnectedness. However, risk management framework seems to

pay more attention on liquidity risk management in individual banks rather than in a whole banking system.

The paper, therefore, aims at introducing a systemic liquidity risk index for a banking system as a leading

indicator of a liquidity crisis. It takes a literature review on concept and methodologies for estimating systemic

liquidity risk indices based on the Basel III. In the last part, the author clarifies differences between Basel

based and conventional systemic liquidity risk indices, as well as between Basel based systemic liquidity risk

indices and liquidity risk indices for individual banks.