Illiquidity component of credit risk

• Autores: Stephen Morris, Hyun Song Shin
• Localización: International economic review, ISSN-e 1468-2354, Vol. 57, Nº. 4, 2016, págs. 1135-1148
• Idioma: inglés
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• Resumen

  • We provide a theoretical decomposition of bank credit risk into insolvency risk and illiquidity risk, defining illiquidity risk to be the counterfactual probability of failure due to a run when the bank would have survived in the absence of a run. We show that illiquidity risk is (i) decreasing in the 'liquidity ratio'-the ratio of realizable cash on the balance sheet to short-term liabilities; (ii) decreasing in the excess return of debt; and (iii) increasing in the solvency uncertainty-a measure of the variance of the asset portfolio. [ABSTRACT FROM AUTHOR]