scholarly journals Liquidity at Risk

2020 ◽  
Vol 20 (82) ◽  
Author(s):  
Rama Cont ◽  
Artur Kotlicki ◽  
Laura Valderrama
Keyword(s):  
At Risk ◽  
Financial Institutions ◽  
Stress Testing ◽  
Financial Institution ◽  
Traditional Approach ◽  
Capital Adequacy ◽  
Stress Tests ◽  
Joint Stress ◽  
Liquidity Shocks ◽  
The Impact

The traditional approach to the stress testing of financial institutions focuses on capital adequacy and solvency. Liquidity stress tests have been applied in parallel to and independently from solvency stress tests, based on scenarios which may not be consistent with those used in solvency stress tests. We propose a structural framework for the joint stress testing of solvency and liquidity: our approach exploits the mechanisms underlying the solvency-liquidity nexus to derive relations between solvency shocks and liquidity shocks. These relations are then used to model liquidity and solvency risk in a coherent framework, involving external shocks to solvency and endogenous liquidity shocks arising from these solvency shocks. We define the concept of ‘Liquidity at Risk’, which quantifies the liquidity resources required for a financial institution facing a stress scenario. Finally, we show that the interaction of liquidity and solvency may lead to the amplification of equity losses due to funding costs which arise from liquidity needs. The approach described in this study provides in particular a clear methodology for quantifying the impact of economic shocks resulting from the ongoing COVID-19 crisis on the solvency and liquidity of financial institutions and may serve as a useful tool for calibrating policy responses.

Diversity and the Performance of Selected Financial Institutions of Asia

2018 ◽  
Vol 2 (1) ◽  
pp. 1
Author(s):  
Shafaque Fatima ◽  
Saqib Sharif
Keyword(s):  
Financial Institutions ◽  
Positive Impact ◽  
Financial Institution ◽  
Gender Diversity ◽  
Business Case ◽  
Ordinary Least Squares ◽  
Cross Sectional ◽  
Age Diversity ◽  
The Impact ◽  
Nationality Diversity

Linking with the business case for diversity, this study examines whether the top management team (TMT) and the board of directors (BODs) diversity has a positive impact on financial institution (FI) performance in select countries of Asia least researched domain. We use data from 119 financial institutions across Asia for the year 2015, initially 1,447 institutions; however, incomplete data was excluded from final analysis. We use three proxies for diversity, that is, nationality diversity, gender diversity, and age diversity of TMT and BODs. To investigate the impact of TMT and BODs diversity, cross-sectional ordinary least-squares estimation is applied, using Return on Average Assets (ROAA%) as a measure of performance.  We find that nationality diversity and age diversity is positively and significantly related to FIs performance. Our evidence indicates that executives and board members with diverse exposure and younger age improve FIs profitability. However, there is no significant relationship between gender and FIs performance.

Solvency stress testing of Islamic commercial banks

2016 ◽  
Vol 7 (2) ◽  
pp. 112-147 ◽  
Author(s):  
Jamshaid Anwar Chattha ◽  
Simon Archer
Keyword(s):  
Commercial Banks ◽  
Stress Testing ◽  
Profit Sharing ◽  
Capital Requirements ◽  
Capital Adequacy ◽  
Stress Tests ◽  
Regulatory Requirement ◽  
Content Type ◽  
Numerical Example ◽  
Remedial Actions

Purpose This paper aims to provide a methodology for designing and conducting solvency stress tests, under the standardised approach as per IFSB-15, including the establishment of macro-financial links, running scenarios with variation of assumptions and stress scenario parameters; apply and illustrate this methodology by providing a stylised numerical example through a tractable Excel-based framework, through which Islamic Commercial Banks (ICBs) can introduce additional regulatory requirements and show that they would remain in compliance with all capital requirements after a moderate to severe shock; and identify the potential remedial actions that can be envisaged by an ICB. Design/methodology/approach The paper uses the data of the one of the groups to which certain amendments and related assumptions are applied to develop a stylised numerical example for solvency stress-testing purposes. The example uses a Stress Testing Matrix (STeM; a step-by-step approach) to illustrate the stress-testing process. The methodology of the paper uses a two-stage process. The first stage consists of calculating the capital adequacy ratio (CAR) of the ICB using the IFSB formulae, depending on how the profit sharing investment account (PSIA) are treated in the respective jurisdiction. The second stage is the application of the stress scenarios and shocks. Findings Taking into account the specificities of ICBs such as their use of PSIA, the results highlighted the sensitivity of the CAR of an ICB with respect to the changes in the values of alpha and the proportion of unrestricted PSIA on the funding side. The simulation also indicated that an ICB operating above the minimum CAR could be vulnerable to shocks of various degrees of gravity, thus bringing the CAR below the minimum regulatory requirement and necessitating appropriate remedial actions. Practical implications The paper highlights various implications and relationships arising out of stress testing for ICBs, including the vulnerability of an ICB under defined scenarios, demanding appropriate immediate remedial actions on future capital resources and capital needs. The findings of the paper provide a preliminary discussion on developing a comprehensive toolkit for the ICBs similar to what is developed by the International Monetary Fund Financial Sector Assessment Programme. Originality/value This paper focuses on the gap with respect to the stress testing of capital adequacy. The main contribution of the paper is twofold. The first is the development of an STeM – a step-by-step approach, which provides a method for simulating solvency (i.e. capital adequacy) stress tests for ICBs; the second is the demonstration of the potentially crucial impact of profit-sharing investment accounts and the way they are managed by ICBs (notably the smoothing of profit payouts) in assessing the capital adequacy of the ICBs.

Corporate governance and the social performance: investigation on Tunisian financial institutions

2018 ◽  
Vol 60 (6) ◽  
pp. 1412-1431
Author(s):  
Nejia Nekaa ◽  
Sami Boudabbous
Keyword(s):  
Corporate Governance ◽  
Financial Institutions ◽  
Financial Institution ◽  
Stock Exchange ◽  
Social Performance ◽  
Financial Sector ◽  
Content Type ◽  
The Social ◽  
Questionnaire Method ◽  
The Impact

Purpose The purpose of this study is to show the specificities of the corporate governance of Tunisian financial institutions and the impact of the internal mechanisms of corporate governance of these institutions on their social performance. It is therefore interesting to establish the existing relationship between these mechanisms of corporate governance and the performance of a financial firm. Design/methodology/approach This study aims to study the financial sector, generally characterized by its opacity, its regulation, its evolution and its obscurity. Therefore, a study based on the questionnaire method was recommended. The questionnaire is intended for managers. Therefore, the authors interviewed 138 managers of Tunisian financial institutions dispersed between agencies and headquarters in different regions (Gabes, Tozeur, Gafsa, Sfax, Sousse and Tunisia). Findings As a result, an impact on performance was observed according to the empirical study. Therefore, the authors can conclude an essential role of internal mechanisms for improving the social performance of a financial institution. The empirical findings in this paper lead to important conclusions. Indeed, the variables measuring the governance mechanisms have divergent effects on the social performance of the financial institutions subject to the sample. For the variables board of directors, confidence, culture, auditing, they have a positive effect. While, the incentive remuneration effect negatively the social performance. Originality/value This study will be based essentially on the financial sector in Tunisia: the credit institutions (22 banks), the establishments of leasing (eight companies of leasing), two factoring companies and two banks of cases which are listed on the Stock Exchange of Tunis (BVMT).

scholarly journals A Research on Stress Testing Approach Towards Evaluating Credit Risk of a Financial Institution

2021 ◽  
Author(s):  
S M Nazmuz Sakib
Keyword(s):  
Financial Institutions ◽  
Stress Testing ◽  
Financial Institution ◽  
Well Being ◽  
Status Quo ◽  
Science Theory ◽  
The Future ◽  
Financial Framework ◽  
Economic Well Being ◽  
Credit Institutions

The stress testing methodology should be implemented and applied to the entity's overall financial system at least annually, and if the organization operates in a volatile economy, it should be performed at least twice a year. Finally, managers should include regular training and development sessions for relevant employees of their organization to be fully informed and more informed and informed, considering the evolving science, theory and practicality of a discrete range of stress testing mechanisms that can be appropriately applied to overall financial framework and system of multiple financial institutions and banks. In addition, stress testing is essentially a methodology that collects and analyzes certain future macro-prudential and micro-prudential economic drivers and indicators, the primary purpose of which is to assess the future financial and economic well-being, level of growth and status quo of a financial institution, bank, organization, credit institution or economy or the nation as a whole. In addition, several of these reviews were specifically focused and incorporated into the paper, which substantially and broadly discussed and summarized the importance, feasibility and implementation and conclusions of different stress testing approaches for financial institutions and banks, especially in European and Chinese countries. region. with the primary intention of assessing the future financial and economic well-being, level of growth and status quo of a group of financial institutions, banks, organizations, credit institutions or the economy or the nation as a whole. In addition, several of these reviews were specifically targeted and incorporated into a paper that substantially and broadly discussed and summarized the importance of the feasibility and implementation and conclusions of different stress testing approaches for financial institutions and banks, especially in European and Chinese countries. region. with the primary intention of assessing the future financial and economic well-being, level of growth and status quo of a group of financial institutions, banks, organizations, credit institutions or the economy or the nation as a whole. In addition, several of these reviews were specifically focused and incorporated into the paper, which substantially and broadly discussed and summarized the importance, feasibility and implementation and conclusions of different stress testing approaches for financial institutions and banks, especially in European and Chinese countries. region. the level of growth and status quo of the financial institutions, banks, organizations, credit institutions or the economy or the nation as a whole. In addition, several of these reviews were specifically focused and incorporated into the paper, which substantially and broadly discussed and summarized the importance, feasibility and implementation and conclusions of different stress testing approaches for financial institutions and banks, especially in European and Chinese countries. region. the level of growth and status quo of the financial institutions, banks, organizations, credit institutions or the economy or the nation as a whole. In addition, several of these reviews were specifically focused and incorporated into the paper, which substantially and broadly discussed and summarized the importance, feasibility and implementation and conclusions of different stress testing approaches for financial institutions and banks, especially in European and Chinese countries.

scholarly journals The Embellishment of Bottom Line through Hyperbole of Accrued Earnings: A Case of Deliberate Earnings Management of a Non-bank Financial Institution Enlisted in Dhaka Stock Exchange and Chittagong Stock Exchange

2016 ◽  
Vol 2 (4) ◽  
pp. 42
Author(s):  
Md. Thasinul Abedin
Keyword(s):  
Financial Institutions ◽  
Positive Impact ◽  
Financial Institution ◽  
Stock Exchange ◽  
Loan Loss ◽  
Accounts Receivable ◽  
Loan Loss Provision ◽  
Loan Loss Provisions ◽  
Accrued Earnings ◽  
The Impact

The study has tried to find out the key parameters through which a non-bank financial institution can embellish its earnings. The study has found that loan loss provisions increases in line with the increase in loan and advances and interest suspense. Moreover, non-bank financial institutions always report other assets except accounts receivable figure which foreshadows an existence of deliberate inflation of earnings. The study has found a positive impact of total loan loss provisions and interest suspense on accrued income, a clear message that non-bank financial institutions always report more accrued earnings to safeguard their profit. Increase in accrued income in line with total loan loss provision and interest suspense is also validated by increase in accrued income with respect to other assets except accounts receivable figure even though the impact of other assets on accrued income is insignificant at 5% level, an accounting channel through which excess other assets except accounts receivable would be inflated for excess increase in accrued income. The study has deduced that other assets except accounts receivable is a reserve bank for discretionary inflation of earnings even though it is insignificant. The study has used time series monthly data of International Leasing and Financial Services Limited, a non-bank financial institution from 2009-2015 reported in the Statement of NBDC sent to Bangladesh Bank each month. Two-time series models have been used in this study. The first model has tried to find out the impact of loan and advances, interest suspense, and other assets except accounts receivable on total loan loss provision. In the first model, there is a significant impact of loan and advances, interest suspense, and other assets except accounts receivable on total loan loss provision. The second model has tried to discern the impact of total loan loss provision, interest suspense, and other assets on accrued income along with other independent variables namely-loan and advances, total fixed assets, and operating income. The study has found a significant positive impact of total loan loss provision and interest suspense on accrued income and insignificant impact of other assets except accounts receivable on accrued income. For both models, there is no long-run relationship among the variables.

scholarly journals Determinants Of European Banks' Capital Adequacy

2015 ◽  
Vol 18 (4) ◽  
pp. 81-98 ◽  
Author(s):  
Emilia Klepczarek
Keyword(s):  
Deposit Insurance ◽  
Subject Area ◽  
Capital Adequacy ◽  
Risk Indicators ◽  
Stress Tests ◽  
Factors Affecting ◽  
Deposit Insurance System ◽  
Tier 1 ◽  
European Banks ◽  
The Impact

This paper examines the factors affecting the Common Equity Tier 1 Ratio (CET1), which is a measure of the relationship between core capital and the risk-weighted assets of banks. The research is based on a randomly selected sample from the group of banks examined by the European Central Bank authorities. The ECB conducted stress tests assessing the CET1 Ratio with respect to the Basel III regulations. The findings confirm the hypothesis about the impact of bank size and the risk indicators (risk-weight assets to total assets ratio and the share of loans in total assets) on banks’ capital adequacy. They also confirm strong effect of competitive pressure and the negative correlation between the CET1 Ratio and the share of deposits in non-equity liabilities, which may be explained by the existence of the deposit insurance system. Finally the paper presents the limitations of the study and conclusions regarding possible further research in this subject area.

scholarly journals ECONOMIC SECURITY MANAGEMENT OF FINANCIAL INSTITUTIONS AS OBJECTS OF THE STATE CRITICAL INFRASTRUCTURE

MEST Journal ◽  
2021 ◽  
Vol 9 (1) ◽  
pp. 216-223
Author(s):  
Nataliia Zachosova ◽  
Zinaida Zyvko ◽  
Oleksii Koval
Keyword(s):  
Financial Institutions ◽  
Negative Impact ◽  
Financial Institution ◽  
Security Management ◽  
Economic Security ◽  
Security System ◽  
Management Decisions ◽  
External Threats ◽  
Wide Range ◽  
The Impact

The need to form a system of economic security for the effective operation of financial institutions is determined. Peculiarities of ensuring economic security of different types of financial institutions are found out, characteristic features of functional systems of economic security of financial intermediaries are revealed. It is offered to understand the management of economic security of financial institutions as a direction of management activities aimed at achieving a high level of protection of the institution's resources from the negative impact of internal and external threats by implementing a wide range of management decisions to use available opportunities and resources while providing financial services. The basics of the mechanism of economic security management of financial institutions are formed. It is assumed that the organization of the economic security system of a financial institution is carried out in several stages, such as the formation of the economic security system, ensuring the economic security system, identification, assessment, ranking of threats, and development of countermeasures; assessing the level of readiness of institutions to implement a mechanism for managing economic security; assessment of the level of economic security, development of management decisions. It is determined that the purpose of economic security management is to achieve the maximum possible level of realization of the institution's interests and meet the interests and needs of clients with optimal resource costs to minimize the impact of threats that accompany the activities of institutions.

scholarly journals DOES CAPITAL ADEQUACY INFLUENCE THE FINANCIAL PERFORMANCE OF LISTED BANKS IN NIGERIA?

2019 ◽  
Vol 4 (2) ◽  
pp. 69-80
Author(s):  
Arekhandia Alfred Ukinamemen ◽  
Hassan O. Ozekhome
Keyword(s):  
Financial Performance ◽  
Financial Institutions ◽  
Economies Of Scale ◽  
Fixed Effect Model ◽  
Bank Loans ◽  
Capital Adequacy ◽  
Productive Capacity ◽  
Economic Output ◽  
Systemic Crises ◽  
The Impact

Capital adequacy is important for the effective operation of any institution, particularly, its sustenance, viability and future growth. Banks as core financial institutions require sufficient capital base for its fund requirement and needs. Against this premise, banks and other financial institutions must keep balance between capital and available risk in its assets in order to reduce the likelihood of systemic crises, financial fragility and thus guarantee stability. This study empirically examines the impact of capital adequacy on the financial performance of banks in Nigeria. A sample of ten (10) listed banks on the basis of size and availability of data were examined over the period 2010 to 2017, using descriptive statistics, and multivariate panel data estimation technique, after conducting the Hausman, test of correlated random samples, wherein the fixed effect model was selected as the appropriate model. The empirical results revealed that banks’ capital adequacy ratio has a positive and significant impact on the financial performance of banks in Nigeria. Other variables found to be significant in the determination of the financial performance of banks in Nigeria are; bank size, bank loans and advances, debt ratio and growth rate of output. Against the backdrop of these findings, we recommend amongst others; sufficient capital base for banks, increased bank size through economies of scale measures, efficient deployment of bank resources, increased economic output (economic productive capacity) that will stimulate bank performance. These, will, in no doubt, reduce banks’ vulnerability to systemic crises and consequently enhance their stability for national growth through efficient financial intermediation.

scholarly journals Empirical Assessment on the Impact of Leverage and Capital Adequacy on Performance of Non-Bank Financial Institutions in Bangladesh

2022 ◽  
Vol 8 (2) ◽  
pp. 159-176
Author(s):  
Liton Chandro Sarkar
Keyword(s):  
Panel Data ◽  
Financial Institutions ◽  
Econometric Models ◽  
Capital Adequacy ◽  
Significant Source ◽  
Return On Assets ◽  
Return On Equity ◽  
Empirical Assessment ◽  
The Impact ◽  
Positive Effect

Non-Bank Financial Institutions (NBFIs) epitomize the most significant source of financing in our economy. NBFI is highly levered in nature. This study tries to empirically identify how capital adequacy and leverage impact NBFIs’ performance in Bangladesh. A number of econometric models using panel data from 2009 to 2019 of 23 NBFIs of Bangladesh have been estimated to achieve the objective of this study. In this research, Return on Assets, Return on Equity and Tobin’s Q are used as a measure of NBFIs performance of Bangladesh. According to estimated result it has been found that capital adequacy has a positive effect on profitability of NBFI’s in Bangladesh. However, the research has found conflicting results when impact of leverage on NBFI performance is measured. Taking the empirical findings into consideration, the management of the NBFIs should embrace policies that are likely to help the NBFIs to maintain enough capital. Keywords: leverage, capital adequacy, NBFI performance, profitability, NBFI equity

scholarly journals Liquidity at risk: Joint stress testing of solvency and liquidity

2020 ◽  
Vol 118 ◽  
pp. 105871 ◽  
Author(s):  
Rama Cont ◽  
Artur Kotlicki ◽  
Laura Valderrama
Keyword(s):  
At Risk ◽  
Stress Testing ◽  
Joint Stress
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