01 Mar Managing Liquidity Risk and Funding Costs During a Crisis
On HBO’s The Last of Us, much of humanity has been zombified by a fungus that spreads like, er, a virus? In economic crises, liquidity risk can do the same, leaving a trail of credit crunches and severe downturns in its wake.
To prepare for this possible scenario – and other extreme events – banks must have adequate liquidity and funding in place. Tougher regulations since the Global Financial Crisis of 2008/9 have gone some way to doing that. Yet existing regulatory measures of liquidity risk remain flawed, and insufficient for gauging banks’ specific vulnerabilities. Moreover, they’re too complex for small and mid-size banks to implement. So what’s a bank to do?
For the answer, check out Alla Gil’s latest column in GARP, which you can find here.