Modelling Liquidity Risk Management in Banking Using System Dynamics Approach

Banks as one of the most important and crucial economic sectors in each country play a significant role in economic growth and development and they face various risks one of which is liquidity risk. Managing liquidity risk is of great importance and identifying its effective factors is more vital. The present study aims to present a dynamic model to manage liquidity risk. System dynamics is used to find a risk making structure and present the most effective solution to manage it. In this method, by providing a mathematical model, simulating the results of various scenarios is possible. The results of implementing four scenarios on the model were simulated and analysed. The results revealed that reducing legal deposits and nonperforming loans and increasing attraction of deposits is influential in banks liquidity risk.