Template-Type: ReDIF-Article 1.0 Author-Name: Tamás Balás Author-Email: balast@mnb.hu Author-Workplace-Name: Magyar Nemzeti Bank (central bank of Hungary) Author-Name: Csaba Móré Author-Email: morecs@mnb.hu Author-Workplace-Name: Magyar Nemzeti Bank (central bank of Hungary) Title: How resilient are Hungarian banks to liquidity shocks? Abstract: For central banks, monitoring banks’ liquidity risk is of great importance from a financial stability perspective. One essential gauge for assessing liquidity risk exposure is whether banks have sufficient liquidity buffers to survive a potential unexpected funding crisis. In this article, we aim to assess the resilience of Hungarian banks to liquidity shocks by using a liquidity stress test. The test is based on a hypothetical stress scenario involving a bank-specific liquidity shock, triggered by a confidence crisis,for example. The shock absorbing capacity of a bank is measured by the maximum degree of liquidity shock the bank can withstand over the short run on the strength of its liquid assets. On the basis of the results of the stress test it is believed that the current liquidity risks essentially do not pose a threat to financial stability. As for large banks, with the overwhelming part of customer deposits, the current liquidity buffers would typically enable the maintenance of liquidity even under extreme circumstances. It should be noted, however, that Hungarian banks are increasingly exposed to fluctuations in global liquidity and that intra-group financing relations may represent a contagion channel. Therefore, in the future, the study of these risk scenarios may be important in further developing stress testing practices for both the central bank and commercial banks. Classification-JEL: G21, G32. Keywords: bank liquidity, liquidity risk, stress testing. Journal: MNB Bulletin Pages: 6-11 Volume: 2 Issue: 1 Year: 2007 Month: June File-URL: http://www.mnb.hu/letoltes/bulletin-2007june-balas-more.pdf File-Format: Application/pdf Handle: RePEc:mnb:bullet:v:2:y:2007:i:1:p:6-11