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Student
Title
Supervisor
Faculty
Educational Programme
Final Grade
Year of Graduation
Polina Kirbitova
Stress Testing of Bank Liquidity: New Approaches to Regulation
Finance
(Master’s programme)
2018
Because of the fact that the common feature of previous crises was ineffective management of bank liquidity, the Basel III introduced two new liquidity ratios – LCR and NSFR. The main difficulty in calculating the short-term liquidity indicator LCR is the estimation of bank cash outflow on the horizon of 30 days in case of implementation of stressful conditions. So,

the present work is devoted to forecasting the expected outflow of the bank's funds using the stress testing tool. The object of the study is 20 private banks in Russia, because their activities are more associated with main banking risks. The subject of the work is stress testing of bank liquidity to assess the short-term liquidity ratio introduced within the Basel III.

The scenarios for carrying out the present stress testing are modeled similarly to the conditions that took place during the 2008 and 2014 crises. The base scenario supposes such a change in parameters, which is considered to be expected for the Russian economy and does not carry significant risks. The results of stress testing revealed that the value of the outflow of bank money increases along with the growth of crisis phenomena in the economy. An analysis of the historical outflow data for the banks in question showed that banks have the ability to withstand the outflow only in the baseline scenario. An assessment of the sufficiency of highly liquid assets of banks to cover a possible outflow indicates a clear insufficiency of assets of the required quality for compliance with the LCR standard during crisis periods.

The practical value of the study is that a constructed model based on macroparameters and individual characteristics of banks is an effective tool for determining the change in the bank cash outflow under the impact of crisis events and can be used by the management of banks to manage the liquidity risk more effectively.

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