
Funding Liquidity Risk From a Regulatory Perspective
Gouriéroux, Christian; Héam, Jean-Cyprien (2014), Funding Liquidity Risk From a Regulatory Perspective, SoFiE-ACPR-BdF Conference, 2014-07, Paris, France
Type
Communication / ConférenceDate
2014Conference title
SoFiE-ACPR-BdF ConferenceConference date
2014-07Conference city
ParisConference country
FrancePages
40
Metadata
Show full item recordAbstract (EN)
In the Basel regulation the required capital of a financial institution is based on conditional measures of the risk of its future equity value such as Value-at-Risk, or Expected Shortfall. In Basel 2 the uncertainty on this equity value is captured by means of changes in asset prices (market risk) and default of borrowers (credit risk), and mainly concerns the asset component of the balance-sheet. Our paper extends this analysis by taking also into account the funding and market liquidity risks. The latter risks are consequences of changes in customers or investors’ behaviors and usu- ally concern the liability component of the balance sheet. In this respect our analysis is in the spirit of the most recent Basel 3 and Solvency 2 regulations. Our analysis highlights the role of the different types of risks in the total required capital. Our analysis leads to clearly distinguish defaults due to liquidity shortage and defaults due to a lack of solvency and, in a regulatory perspective, to introduce two reserve accounts, one for liquidity risk, another one for solvency risk. We explain how to fix the associated required capitals.Subjects / Keywords
Regulation; Funding Liquidity Risk; Liquidity Shortage; Solvency 2; Value-at-Risk; Asset/Liability ManagementRelated items
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