THAILAND
INTERNATIONAL MONETARY FUND
25
12. The liquidity stress test on IFs showed that they would be able to withstand a severe
redemption shock and its impact on the banks and the bond market would be limited
(Table 7).
4
The cash positions of open-ended daily fixed income funds and money market funds are
mostly sufficient to meet redemption demands when assuming that a fund
covers redemptions by
liquidating its most liquid assets in an orderly manner (waterfall approach); when assuming that a
fund covers redemptions by maintaining intact the structure of assets (pro rata approach) a majority
of the IFs retain
a good amount of liquid assets, but a more aggressive sale of government bonds is
required and would have a larger impact on the bond market. Credit lines between banks
and asset
management companies would provide an additional layer of liquidity buffer.
C. Interconnectedness, Contagion, and Systemic Risk
13. Contagion and systemic risks stemming from interlinkages are limited, reflecting the
small interbank exposures and strong capital positions (Figure 13). The exercise based on
Espinoza-Vega and Solé (2010) showed that no failure of a single domestic bank would
trigger
another bank to fail, indicating the absence of a “cascade effect.” Banks’ cross border exposures are
also small. Inter-sectoral exposures under the balance sheet analysis also point to limited
cross-border exposures except in the case of corporate sector (primarily
through foreign direct
investments (FDIs)). The relatively low degree of interconnectedness was confirmed by financial
stability measures (Figure 14), which indicate that contagion
among the five largest banks, at its
highest at the height of the Global Financial Crisis (GFC), has subsequently decreased to the lowest
levels in the past 11 years.
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