اقتصاد باثبات (Aug 2022)
Stress test of Liquidity risk in Iran's banking system: Calculating of loss distribution of banks' liquidity risk with Monte Carlo simulation method
Abstract
In recent years, the use of effective risk management techniques in financial institutions, especially banks, has become more important. One of the methods related to this approach, which is very important for effective risk management; It is stress test. This test is considered a complementary tool along with other risk management tools, which determines the amount of capital required by banks and credit institutions to safely face various shocks, for example, macroeconomic shocks and cover the losses caused by these shocks. Empirical studies in recent years show that economic conditions are the cause of financial crises and also the emergence of liquidity risk in the banking system. In this article, by selecting 18 banks of the country and using the information of their financial statements in 54 quarterly periods from 2008 to 2021, stress test of banks' liquidity risk in the conditions of crisis and economic shock has been investigated, which includes two stages; In the first stage, the impact of effective factors such as macro variables and banking variables on liquidity risk has been modeled with a basic dynamic panel regression model, and in the next stage, with making scenario in terms of Basel III, the impact of macro variables' shock on banks' liquidity risk has been investigated to examine the ability and resistance of banking network in the conditions of tension and crisis. In the following, by using the Monte Carlo simulation and by calculating the value at risk of liquidity risk for at least one year after the estimation period, the loss of banks' liquidity risk in the face of shocks has been obtained. The results of stress test show among the shocks of macroeconomic variables, the shock of exchange rate has the greatest impact on banks' liquidity risk. Therefore, by considering effective factors among shocks, not only can financial crises be controlled, but it can be a precursor to the empowerment of banks before the occurrence of any type of shock in macroeconomic conditions.
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