Estimating liquidity risk using the exposure-based cash-flow-at-risk approach: an application to the UK banking sector

This paper uses a relatively new quantitative model for estimating UK banks' liquidity risk. The model is called the exposure-based cash-flow-at-risk (CFaR) model, which not only measures a bank's liquidity risk tolerance but also helps to improve liquidity risk management through the provision of additional risk exposure information. Using data for the period 1997–2010, we provide evidence that there is variable funding pressure across the UK banking industry, which is forecasted to be slightly illiquid with a small amount of expected cash outflow (i.e. £0.06 billion) in 2011. In our sample of the six biggest UK banks, only the HSBC maintains positive CFaR with 95% confidence, which means that there is only a 5% chance that HSBC's cash flow will drop below £0.67 billion by the end of 2011. RBS is expected to face the largest liquidity risk with a 5% chance that the bank will face a cash outflow that year in excess of £40.29 billion. Our estimates also suggest Lloyds TSB's cash flow is the most volatile of the six biggest UK banks, because it has the biggest deviation between its downside cash flow (i.e. CFaR) and expected cash flow

An assessment of UK banking liquidity regulation and supervision

This thesis assesses UK banking liquidity regulation and supervision and the Basel liquidity requirements, and models banks' liquidity risk. The study reveals that the FSA's risk-assessment framework before 2008 was too general without specifically considering banks' liquidity risk (as well as its failures on Northern Rock). The study also lists the limitations of the FSA's banking liquidity regimes before 2008. The thesis reviews whether the FSA's new liquidity regimes after 2008 would have coped with UK banks' liquidity risks if they have been applied properly. The fundamental changes in the FSA's liquidity supervision reflect three considerations. First, it introduces a systemic control requirement by measuring individual fifirm's liquidity risk with a market-wide stress or combination of idiosyncratic and market-wide stresses. Second, it emphasizes the monitoring of business model risks and the capability of senior managers. Third, it allows both internal and external managers to access more information by increasing the liquidity reporting frequencies. The thesis also comments on the Basel Liquidity Principles of 2008 and the two Liquidity Standards. The Principles of 2008 represents a substantial revision of the Principles of 2000 and reflect the lessons of the fifinancial market turmoil since 2007. The study argues that the implementation of the sound principles by banks and supervisors should be fexible, but also need to be consistent to make sure they understand banks' liquidity positions quite well. The study also explains the composition of the Basel liquidity ratios as well as the side effect of Basel liquidity standards; for example, it will reshape interbank deposit markets and bond markets as a result of the increase in demand for `liquid assets' and `stable funding'. This thesis uses quantitative balance sheet liquidity analysis, based upon modified versions of the BCBS (2010b) and Moody's (2001) models, to estimate eight UK banks' short and long-term liquidity positions from 2005 to 2010 respectively. The study shows that only Barclays Bank remained liquid on a short-term basis throughout the sample period (2005-2010); while the HSBC Bank also proved liquid on a short-term basis, although not in 2008 and 2010. On a long-term basis, RBS has remained liquid since 2008 after receiving government support; while Santander UK also proved liquid, except in 2009. The other banks,especially Natwest, are shown to have faced challenging conditions, on both a short-term and long-term basis, over the sample period. This thesis also uses the Exposure-Based Cash-Flow-at-Risk (CFaR) model to forecast UK banks' liquidity risk. Based on annual data over the period 1997 to 2010, the study predicts that by the end of 2011, the (102) UK banks' average CFaR at the 95% confidence level will be -£5.76 billion, Barclays Bank's (Barclays') CFaR will be -£0.34 billion, the Royal Bank of Scotland's (RBS's) CFaR will be -£40.29 billion, HSBC Bank's (HSBC's) CFaR will be £0.67 billion, Lloyds TSB Bank's (Lloyds TSB's) CFaR will be -£4.90 billion, National Westminister Bank's (Natwest's) CFaR will be -£10.38 billion, and Nationwide Building Society's (Nationwide's) CFaR will be -£0.72 billion. Moreover, it is clear that Lloyds TSB and Natwest are associated with the largest risk, according to the biggest percentage difference between downside cash flow and expected cash flow (3600% and 816% respectively). Since I summarize a bank's liquidity risk exposure in a single number (CFaR), which is the maximum shortfall given the targeted probability level, it can be directly compared to the bank's risk tolerance and used to guide corporate risk management decisions. Finally, this thesis estimates the long-term United Kingdom economic impact of the Basel III capital and liquidity requirements. Using quarterly data over the period 1997:q1 to 2010:q2, the study employs a non-linear-in-factor probit model to show increases in bank capital and liquidity would reduce the probability of a bank crisis significantly. The study estimates the long-run cost of the Basel III requirements with a Vector Error Correction Model (VECM), which shows holding higher capital and liquidity would reduce output by a small amount but increase bank profitability in the long run. The maximum temporary net benefit and permanent net benefit is shown to be 1.284% and 35.484% of pre-crisis GDP respectively when the tangible common equity ratio stays at 10%. Assuming all UK banks also meet the Basel III long-term liquidity requirements, the temporary net benefit and permanent net benefit will be 0.347% and 14.318% of pre-crisis GDP respectively. Therefore, the results suggest that, in terms of the impact on output, there is considerable room to further tighten capital and liquidity requirements, while still providing positive effects for the United Kingdom economy

A Cost-Benefit Analysis of Basel III: Some Evidence from the UK

This paper provides a long-term cost-benefit analysis for the United Kingdom of the Basel III capital and liquidity requirements proposed by the Basel Committee on Banking Supervision (BCBS, 2010a). We provide evidence that the Basel III reforms will have a significant net positive long-term effect on the United Kingdom economy. The estimated optimal tangible common equity capital ratio is 10% of risk-weighted assets, which is larger than the Basel III target of 7%. We also estimate the maximum net benefit when banks meet the Basel III longterm liquidity requirements. Our estimated permanent net benefit is larger than the average estimates of the BCBS. This significant marginal benenfit suggests that UK banks need to increase their reliance on common equity in their capital base beyond the level required by Basel III as well as boosting customer deposits as a funding source.Basel III, Cost-Benefit analysis, Tangible Common Equity Capital, Liquidity

Estimating Liquidity Risk Using The Exposure-Based Cash-Flow-at-Risk Approach: An Application To the UK Banking Sector

This paper uses a relatively new quantitative model for estimating UK banks' liquidity risk. The model is called the Exposure-Based Cash-Flow-at-Risk (CFaR) model, which not only measures a bank's liquidity risk tolerance, but also helps to improve liquidity risk management through the provision of additional risk exposure information. Using data for the period 1997-2010, we provide evidence that there is variable funding pressure across the UK banking industry, which is forecasted to be slightly illiquid with a small amount of expected cash outflow (i.e. £0.06 billion) in 2011. In our sample of the six biggest UK banks, only the HSBC maintains positive CFaR with 95% confidence, which means that there is only a 5% chance that HSBC's cash flow will drop below £0.67 billion by the end of 2011. RBS is expected to face the largest liquidity risk with a 5% chance that the bank will face a cash outflow that year in excess of £40.29 billion. Our estimates also suggest Lloyds TSB's cash flow is the most volatile of the six biggest UK banks, because it has the biggest deviation between its downside cash flow (i.e. CFaR) and expected cash flow.Liquidity risk, Exposure-based CFaR, Risk Management, Funding Pressure

A comparative and conceptual intellectual study of environmental topic in economic and finance

We aim to provide a comprehensive overview of the past, present, and future development of environmental related topics in Economics and Finance. In this regard, Environmental Finance (EF)- and Environmental, Social, and Governance (ESG)-related literature is collected and analysed. The paper draws chronical pictures of the topic development in these two recently developed fields by applying bibliometric methods. Then, we provide a novel systemic comparison on their main differences. Reviewing the top journal publications, we identify literature gaps for a future research agenda. In particular, on the one hand, for EF, we suggest exploring various financial innovations to generate environmental benefits research, and thus building up efficient regulatory framework for addressing major regional and/or global environmental issues. On the other hand, for ESG, we respectively provide potential research directions to conduct the cost-benefit study on the real impact of ESG disclosure and to evaluate how ESG investment strategy efficiently deliver sustainable development

Characterization of High-Performance Organic Dyes for Dye-Sensitized Solar Cell: A DFT/TDDFT Study

Dye-sensitized solar cell (DSSC) is currently a promising technology that makes solar energy efficient and cost-effective to harness. In DSSC, metal free dyes, such indoline-containing D149 and D205, are proved to be potential alternatives for traditional metal organic dyes. In this work, a DFT/TDDFT characterization for D149 and D205 were carried out using different functionals, including B3LYP, MPW1K, CAM-B3LYP and PBE0. Three different conformers for D149 and four different conformers for D205 were identified and calculated in vacuum. The performance of different functionals on calculating the maximum absorbance of the dyes in vacuum and five common solvents (acetonitrile, chloroform, ethanol, methanol, and THF) were examined and compared to determine the suitable computational setting for predicting properties of these two dyes. Furthermore, deprotonated D149 and D205 in solvents were also considered, and the highest occupied molecular orbital (HOMO) and lowest unoccupied molecular orbital (LUMO) were calculated, which elucidates the substitution effect on the rhodanine ring of D149 and D205 dyes on their efficiency. Finally, D149 and D205 molecules were confirmed to be firmly anchored on ZnO surface by periodic DFT calculations. These results would shed light on the design of new highly efficiency metal-free dyes.The accepted manuscript in pdf format is listed with the files at the bottom of this page. The presentation of the authors' names and (or) special characters in the title of the manuscript may differ slightly between what is listed on this page and what is listed in the pdf file of the accepted manuscript; that in the pdf file of the accepted manuscript is what was submitted by the author

How liquid are banks : some evidence from the United Kingdom

This paper uses quantitative balance sheet liquidity analysis, based upon modified versions of the BCBS 1 and Moody’s 2 models, to provide indicators which would alarm the UK banks’ short and long-term liquidity positions respectively. These information will also underpin other research related liquidity risk to banks’ lending and performance. Our framework accurately reflect UK banks’ liquidity positions under both normal and stress scenarios based on the consistent accounting information under IFRS. It has significant contribution on Basel III liquidity ratios calculation. The study also presents fundamental financial information to facilitate analysis of banks’ business models and funding strategies. Using data for the period 2005-2010, we provide evidence that there have been variable liquidity strains across the UK banks in our sample. The estimated results show that Barclays Bank was the only bank to maintain a healthy short-term liquidity position throughout the sample period; while HSBC remained liquid in the short term, in both normal and stress conditions, except in 2008 and 2010. RBS, meanwhile, maintained healthy long-term liquidity positions from 2008 after receiving government injections of capital. And Santander UK was also able to post healthy long-term liquidity positions, except in 2009. However, the other four banks, the Bank of Scotland, Lloyds TSB, Natwest, and Standard Chartered, proved illiquid, on both a short-term and long-term basis, throughout the six-year period, with Natwest being by far the worst performer

Ex Situ Reconstruction-Shaped Ir/CoO/Perovskite Heterojunction for Boosted Water Oxidation Reaction

The oxygen evolution reaction (OER) is the performance-limiting step in the process of water splitting. In situ electrochemical conditioning could induce surface reconstruction of various OER electrocatalysts, forming reactive sites dynamically but at the expense of fast cation leaching. Therefore, achieving simultaneous improvement in catalytic activity and stability remains a significant challenge. Herein, we used a scalable cation deficiency-driven exsolution approach to ex situ reconstruct a homogeneous-doped cobaltate precursor into an Ir/CoO/perovskite heterojunction (SCI-350), which served as an active and stable OER electrode. The SCI-350 catalyst exhibited a low overpotential of 240 mV at 10 mA cm-2 in 1 M KOH and superior durability in practical electrolysis for over 150 h. The outstanding activity is preliminarily attributed to the exponentially enlarged electrochemical surface area for charge accumulation, increasing from 3.3 to 175.5 mF cm-2. Moreover, density functional theory calculations combined with advanced spectroscopy and 18O isotope-labeling experiments evidenced the tripled oxygen exchange kinetics, strengthened metal-oxygen hybridization, and engaged lattice oxygen oxidation for O-O coupling on SCI-350. This work presents a promising and feasible strategy for constructing highly active oxide OER electrocatalysts without sacrificing durability

Commodity Market Financialization, Herding and Signals : An asymmetric GARCH R-vine copula approach

Institutional investors have significantly increased their exposure to commodity futures after 2004 in the process of commodity market financialization, raising questions about the risk-sharing and price-discovery functions of the market. We identify some symptoms of financialization through examining S&P500, JPM bond index, and 18 S&P GSCI excess return indices, employing ARMA-GARCH R-vine copula approach that can flexibly model high-dimensional multivariate asymmetric tail dependence. We discover three trends: an increased resemblance between the news impact curve of stocks and those of commodities; an increased bi-variate stock-commodity tail dependence; and an increased multivariate tail-dependence across all commodities. We also explore the market structural change underlying these symptoms using an augmented news impact curve. We suggest and provide evidence that herding, in addiction to leverage effect, explains the observed symptoms. The findings have profound implications for commercial hedgers and financial traders, and for regulators who are concerned about the functionalities of commodity futures market

Suppression of high-mobility group box 1 ameliorates xerostomia in a Sjögren syndrome-triggered mouse model

Xerostomia is a self-conscious symptom. High-mobility group box 1 (HMGB1) promotes pro-inflammatory effects in many diseases. This study aimed to clarify the role of HMGB1 in Sjögren syndrome (SS)-triggered xerostomia. Nonobese diabetic (NOD)/Ltj mice were used to establish an SS-triggered xerostomia model. The results showed that saliva production was decreased and anti-Sjögren syndrome B (anti-SSB) level was increased in SS. PCR, Western blot, and immunohistochemistry experiments indicated that the HMGB1 and aquaporin 5 (AQP5) levels were enhanced and diminished in SS compared with those in the control, respectively. While the mice were treated with anti-HMGB1, xerostomia was reversed due to the elevated saliva production and reduced anti-SSB level. In addition, it was found that the inhibition of HMGB1 restrained the toll-like receptor 4 (TLR4)/nuclear factor kappa B (NF-κB) axis activation. The TLR4 and p-IκB levels were alleviated, while the IκBα and NF-κB p65 levels were augmented. The NF-κB p65 binding activity was attenuated via the electrophoretic mobility shift assay (EMSA) after anti-HMGB1 treatment. Moreover, the repression of HMGB1 facilitated the expression of AQP5. These findings demonstrate that suppression of HMGB1 ameliorates SS-triggered xerostomia via suppressing the HMGB1/TLR4/NF-κB signaling pathway and upregulating AQP5 expression.The accepted manuscript in pdf format is listed with the files at the bottom of this page. The presentation of the authors' names and (or) special characters in the title of the manuscript may differ slightly between what is listed on this page and what is listed in the pdf file of the accepted manuscript; that in the pdf file of the accepted manuscript is what was submitted by the author