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Stress-Testing of liquidity risk in TARGET2

Author

Listed:
  • Frutos de Andres, Juan Carlos
  • Papsdorf, Patrick
  • Arciero, Luca
  • Hellqvist, Matti
  • Heyvaert, Patrick
  • Kaliontzoglou, Alexandros
  • König, Ronald
  • Korpinen, Kasperi
  • Martin, Clement
  • Müller, Alexander
  • Perez Garcia de Mirasierra, Miguel
  • Ponsart, Maxime
  • Rainone, Edoardo
  • Rosenkranz, Peter
  • Testi, Sara
Abstract
The paper reports the outcome of the stress-testing of liquidity risk in the TARGET2 payment system, with the study having been conducted by an ad-hoc group composed of operators and overseers of TARGET2. The study aims to assess the resilience of the system, defined as the network of its participants, and the appropriateness of liquidity levels under tightened liquidity conditions. The scenarios analysed are based on extreme shocks to the value of collateral of different levels and types that lead to a decrease in the intraday credit lines available in TARGET2 and, as a result, the payment capacity of TARGET2 participants. The tool used to perform these stress tests is the TARGET2 simulator, which provides access to real transaction level data and allows simulations to be run by changing parameters, in this case the credit lines. The period under analysis is one maintenance period for the years 2008 to 2013. In general, the stress-testing indicates that the system is resilient under the stress scenarios; liquidity levels seem to be appropriate and supported by the efficient liquidity management features of TARGET2. Even in the worst simulated event of a 70% drop in all collateral value, 80-90% of TARGET2 turnover would have been settled. The scenario results take also into account that the period under analysis was characterised by unconventional monetary policy measures. JEL Classification: C63, E42, E58, G01

Suggested Citation

  • Frutos de Andres, Juan Carlos & Papsdorf, Patrick & Arciero, Luca & Hellqvist, Matti & Heyvaert, Patrick & Kaliontzoglou, Alexandros & König, Ronald & Korpinen, Kasperi & Martin, Clement & Müller, Ale, 2017. "Stress-Testing of liquidity risk in TARGET2," Occasional Paper Series 183, European Central Bank.
    • Handle: RePEc:ecb:ecbops:2017183
    Note: 2566570
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    File URL: https://www.ecb.europa.eu//pub/pdf/scpops/ecbop183.en.pdf
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    More about this item

    Keywords

    liquidity risk; principles for FMIs; simulation; stress testing; TARGET2;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises

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