Abstract
The paper´s aim is to contribute to the debate on the impact of stress test on banking system liquidity. Due to the theoretical character of the problem, the used methodology is a set of results from research and theoretical works about how the attempts to increase system solvency could lead into a greater lack of liquidity.
Highlights
After World War I, Moulton (1918a, pp. 484-508; 1918b, pp. 638-663; 1918c, 705-731) explained his shiftability theory, in which, under normal conditions, liquidity is not as much a maturity problem as an assets transfer problem to other banks and ‘raise cash’
Half a decade after what is considered to have been the start of the credit crunch, the public are more disappointed with the banking sector than ever, as well as with regulators and supervisors who were unable to monitor the proper functioning of the banks in order to avoid the two recessions suffered by the economy since the beginning
The depth and duration of the financial crisis has led many banks and supervisory authorities, as well as academic and media to question whether stress testing practices were sufficient, prior and after crisis
Summary
After World War I, Moulton (1918a, pp. 484-508; 1918b, pp. 638-663; 1918c, 705-731) explained his shiftability theory, in which, under normal conditions, liquidity is not as much a maturity problem as an assets transfer problem to other banks and ‘raise cash’. Unsure about the depth of the problems on other banks’ balance sheets, were unwilling to lend to each other without substantial In this context, supervisors brought stress testing up as the only way out from the confidence crisis that underlies the liquidity crisis consequence of a prior regulatory crisis. Situations such as the Irish banks, which approved the 2010 ́s stress tests and forced the country to be rescued a few months later, and recent banking bailouts (e.g. Dexia, Bankia) led to a criticism in media about the tests rigour (The Financial Times 2011; Finch et al 2011; Burke 2011) In this sense, half a decade since the crisis started, a lack of confidence over banks information and liquidity crisis in markets there remains. We show the references used in this paper
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