BOK Working/Discussion Papers

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Measuring Systemic Funding Liquidity Risk in the Interbank Foreign Currency Lending Market

Economic Research Institute (82-2-759-5349) 2010.02.22 5514

This paper proposes a new framework which captures the
systemic nature of funding liquidity risk. Using this
framework we develop a set of indicators which measure
different aspects of the systemic funding liquidity risk in the
interbank foreign currency lending market: (i) systemic
funding liquidity needs, (ii) systemic vulnerability, (iii)
systemic importance and (iv) systemic liquidity shortages.
We also analyze the systemic funding liquidity risk of the
Korean banking system under the new framework. The
Korean banking system has become more vulnerable to the
systemic funding liquidity risk of foreign currency debt since
2006. The systemic importance of foreign bank branches and
the systemic vulnerability of domestic banks have
simultaneously increased as the domestic banks have relied
heavily on FX swap transactions with foreign bank branches
to raise foreign currency funds.



1. Introduction

2. Framework

3. Measuring Systemic Funding Liquidity Risk

4. Systemic foreign currency Funding Liquidity Risk in the Korean Banking System

5. Conclusions

References

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