Liquidity risk

The paper focuses on liquidity risk management in New Zealand banks, which is compared to liquidity risk management in other countries. A range of theoretical approaches to liquidity risk measurement and management are discussed, and these are compared to New Zealand banks' stated liquidity policies. An attempt is made to use some of the models detailed in the theoretical literature

A specific risk of this period is liquidity risk arised from inexistence of adecquted management. A new risk arises from financial measures against the effects of economic worldwide crisis. These measures are dedicated to mitigate the crisis risks but, they may become a real challange for companies and individuals caused by new competence needed. As a conclusion, the topic of

Financial insolvency is important for sustainable national growth. This can be resolved through liquidity management, which is very important in any organization in terms of the organization's current assets, current liabilities, shortterm borrowings, and management of shortfall or surplus cash for short-term periods, which affects the company's profitability. Liquidity management should be the company's goal of working capital management. Such idle cash can be used to invest in another company or diversifiable venture that are profitable. Accounting software or accounting information system is a resolution to financial insolvency in which it captures and records the financial effects of transactions. Accounting Information System (AIS) assists managers in four problem-solving stages, which are recognizing the problem, identifying alternatives, assessing the alternatives and taking managerial decision. The methodology employed for this study is Meta-analysis. The sample size employed was 30 literatures. The overall combined relationship had a P-value of .0000 indicating an overall significant level. Insolvency practice and its regulation is critical to economic development. This is especially true in the light of the unintended consequences of globalisation that may result in economic shock and business failures. Nigeria can benefit from reforms in financial insolvency by benchmarking the reform and practice initiatives of the more advanced countries within and outside Africa.

Islamic banking is interest free banking which makes it necessary for Islamic banks to take active part in the operations of the business i.e. share profits as well as losses. Banks including Islamic banks prefer to take minimum risk. On the surface, it may seem that Islamic banks face more risk and hence will have more volatile or even negative returns on their assets.

This paper analyzes the risk management procedures of Islamic banks by giving a differential analysis of risk management discussing only the unique characteristics of risk management in Islamic Banking. The usual credit assessment procedures and BASEL are not discussed. This paper looks at the comparative performance of Islamic banks and conventional banks by using ROE as the benchmark.

The inconclusive definition of Gharar as risk and uncertainty can be commonly found in the contemporary literatures. The difference in the meaning of Gharar is generally thought to be due to the difference in the jurisprudence point of views. The current practice is that there is no standard in defining the terms. The study employs content analysis approach to review available literature on the term Gharar. The finding of this study introduces steps in defining terminology namely; dictionary definition, Arabic linguistic definition and jurisprudence definition. However, the philosophy of risk as stated in the Holy Quran and Hadith differs from the concept of risk in conventional finance. The finding reveals that risk in Islamic banking refers to a wider interpretation covering the concepts gharar. mysir, mukhatarah, al ghunm bil ghurm and al kharajbil daman than the element of uncertainty as in the conventional finance. This contributes to the existing body of knowledge in the area of risk elements in Islamic contracts. Keyword: Gharar, Mukhatarah, Mysir, al ghunm bil ghurm and al kharaj bil daman.

The financial crisis of 2007-2008 was a liquidity crisis. Thus we must both study the source of the crisis and evaluate the regulatory measures to address it. How was this liquidity crisis and its associated risk related to other forms of risk? What was the nature of the vicious cycle that produced the crisis? How did the regulators respond and have continued to respond? What are some quantitative dimensions of the liquidity risk measure? We provide a critical survey of the existing literature in an attempt to answer these questions.

We investigate why spreads on corporate bonds are so much larger than expected losses from default. Systematic factors make very little contribution to spreads, even if higher moments or downside effects are taken into account. Instead we find that sizes of spreads are strongly related to idiosyncratic-risk factors: not only to idiosyncratic equity volatility, but even more to idiosyncratic bond

Stress-tests entail assessing the reaction of individual banks to adverse macroeconomic scenarios. This paper describes a framework to perform stress-tests of US individual banks' profitability, based on a dynamic factor model approach encompassing both microeconomic information on individual US banks’ profitability (measured by Return on Assets, RoA hereinafter) and the macroeconomic environment. We evaluate “out-of-sample” conditional forecasts of bank profitability, based on a set of macroeconomic assumptions and we show that the model accurately captures non-trivial dynamic interrelationships between the microeconomic and the macroeconomic variables.

This article studies the relationship between company size and performance for small and medium-sized Portuguese companies. Using dynamic panel estimators, we conclude that performance is related positively to size. This relationship suggests the greater relevance of scale effects, diversification and the greater ability of larger companies to cope with market changes. Furthermore, our empirical results show that performance is persistent, not showing discontinuity, suggesting that small and medium-sized Portuguese companies are relatively successful in coping with possible scenarios of aggressive competition. Debt and level of fixed assets influence performance negatively, and separation of management and ownership influence performance positively. Liquidity, risk and ownership control are not relevant in explaining the performance of small and medium-sized Portuguese companies.

In order to correctly estimate the unpredictable effects on their transaction portfolios, the banks developed stress testing methods which turned out to be a very important tool in the bank supervision process. Moreover, the supervision authorities started using stress-testing methods for evaluating systemic risk and for determining the adequacy degree of capital in the banking sector. Taking into account the importance of these simulations, the present paper presents methodologies with which stress testing methods could be implemented by banks as well as their role in the management of credit risk, market risk and liquidity risk while also meeting the requirements imposed by the Basel II accord. By means of a case study we have simulated several scenarios in which the inter-bank market interest rate was varied, quantifying its impact on bank revenues as well as on the market value of their portfolios.

We provide a macro stress-testing model for banks' market and funding liquidity risks with a survival period of one and three months. The model takes into account the impact of both bank-specific and market-wide scenarios and considers both the first- and second-round effects of shocks. The testing model has three phases; (i) the formation of a balance-sheet liquidity shortfall, (ii) the reaction by banks, and (iii) the feedback effects of shocks. During each phase we re-count the liquidity buffer and examine whether banks hold a sufficiently large amount of liquid assets to be able to survive the liquidity tension in their balance sheets. An application to Czech banks illustrates which bank business models are sensitive to liquidity tensions. Overall, we confirm that the Czech banking system is resilient to a scenario mimicking the international liquidity crisis of 2008-2009.

In the light of the recent financial market turmoil, this paper focuses on liquidity risk management from the point of view of both supervisory authorities and large financial institutions. This research aims at pointing out the main differences between national regulations and supervisory regimes in the most important EU Countries (UK, DE, IT, FR, SP), trying to explain the rationale and the limits of the different approaches. Taking into account liquidity risk management models adopted in the major banking groups within the same countries, this paper also suggests the most significant issues to be considered in order to implement effective liquidity risk management. Areas of convergence/divergence at international level are highlighted and “food for thought” is offered on a subject that is gaining more and more attention of academics and officials worldwide, that is to say the importance of finding regulatory solutions and management models suited to 'remove' systemic crisis.

We review the theories on how liquidity affects the required returns of capital assets and the empirical studies that test these theories. The theory predicts that both the level of liquidity and liquidity risk are priced, and empirical studies find the effects of liquidity on asset prices to be statistically significant and economically important, controlling for traditional risk measures and asset characteristics. Liquidity-based asset pricing empirically helps explain (1) the cross-section of stock returns, (2) how a reduction in stock liquidity result in a reduction in stock prices and an increase in expected stock returns, (3) the yield differential between on-and off-the-run Treasuries, (4) the yield spreads on corporate bonds, (5) the returns on hedge funds, (6) the valuation of closed-end funds, and (7) the low price of certain hard-to-trade securities relative to more liquid counterparts with identical cash flows, such as restricted stocks or illiquid derivatives. Liquidity...