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Title: Estimating liquidity risk using the exposure-based cash-flow-at-risk approach: an application to the UK banking sector
Authors: Hall, Maximilian J.B.
Yan, Meilan
Turner, Paul M.
Keywords: Liquidity risk
Exposure-based CFaR
Risk management
Funding pressure
Issue Date: 2014
Publisher: © John Wiley & Sons
Citation: HALL, M., YAN, 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.
Abstract: This 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.
Description: Closed access.
Version: Published
DOI: 10.1002/ijfe.1495
URI: https://dspace.lboro.ac.uk/2134/24255
Publisher Link: http://dx.doi.org/10.1002/ijfe.1495
ISSN: 1076-9307
Appears in Collections:Closed Access (Economics)

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