Abstract

The global financial crisis has shown how important is the role of liquidity risk in ensuring the stability of the banking system, and revealed a number of deficiencies in its regulation, both at the level of individual banks and at the level of banking regulation and supervision. It is necessary to develop new instruments and improve of existing instruments for protection the banking system from the negative effects of liquidity risk. These tools necessarily include stress testing of liquidity risk. In order to increase the efficiency of liquidity risk management of Ukrainian banks at micro and macro levels, the authors propose to apply stress testing of liquidity of assets. The stress-testing model is based on three phases: the formation of a liquidity deficit in the balance as a primary effect of the shocks; bank reactions to shocks; feedback effects from shocks. According to the model, the liquidity buffer is calculated and the banks have sufficient liquid assets to cover the liquidity deficit.

The model was tested on a group of Ukrainian banks with a state stake (JSB “Ukrgasbank”, JSC “Oschadbank”, JSC “Ukreximbank” and PJSC “PrivatBank”), the impact of which on the banking system of Ukraine is the most significant, based on data from 2012 to 2016. According to the results of the study, it was determined that with a sufficient amount of assets liquidity buffers in stateowned banks, their quality remains rather low, the share of secondary reserves in banks is critically low. For the crucial role of this segment in the Ukrainian banking system, it is necessary to improve the liquidity management system of this group of banks, including, in order to minimize the systemic liquidity risk.

This test may use prudential oversight bodies as an appropriate alternative to available liquidity risk assessment tools (primarily established by the NBU for liquidity ratios) at both micro and macro levels of liquidity regulation.

Keywords: liquidity, liquidity risk, liquidity stress testing, Banks’ Liquidity Buffers.

JEL Classification: G12, G19, G21.

Cite as: Ol. Krykliy, Ir. Luchko. (2018). Model of Stress-testing of Banks’ Liquidity Risk in Ukraine. Financial Markets, Institutions and Risks, 2(2), 123-132. DOI: 10.21272/fmir.2(2).123-132.2018

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