Funding Liquidity Risk: Definition and Measurement

51 Pages Posted: 6 Mar 2009

See all articles by Mathias Drehmann

Mathias Drehmann

Bank for International Settlements (BIS)

Kleopatra Nikolaou

European Central Bank (ECB)

Multiple version iconThere are 3 versions of this paper

Date Written: March 6, 2009

Abstract

In this paper we propose definitions of funding liquidity and funding liquidity risk and present a simple, yet intuitive, measure of funding liquidity risk based on data from open market operations. Our empirical analysis uses a unique data set of 135 main refinancing operation auctions conducted at the ECB between June 2005 and December 2007. We find that our proxies for funding liquidity risk are typically stable and low, with occasional spikes, especially during the recent turmoil. We are also able to document downward spirals between funding liquidity risk and market liquidity.

Keywords: funding liquidity, liquidity risk, bidding data, money market auctions, interbank markets

JEL Classification: E58, G21

Suggested Citation

Drehmann, Mathias and Nikolaou, Kleopatra, Funding Liquidity Risk: Definition and Measurement (March 6, 2009). ECB Working Paper No. 1024, Available at SSRN: https://ssrn.com/abstract=1338092

Mathias Drehmann (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Kleopatra Nikolaou

European Central Bank (ECB) ( email )

700 19th str
Washington, DC 20431
United States

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