A new report from Aite Group examines liquidity risk and liquidity risk management (LRM), focusing on recent global LRM pronouncements from regulatory bodies in the United States and Europe. It reviews these standards and discusses what market participants must do in order to comply with them.
The financial crisis revealed a number of liquidity risk management deficiencies at many financial institutions. Many financial institutions held insufficient liquid assets, untenable asset-liability mismatches, and a paucity of ex-ante analysis and contingent plans associated with liquidity risk management. As a result, global regulators have released pronouncements that address LRM.
Global regulators have put financial institutions on notice that the LRM process must now be a robust endeavor, says John Jay, senior analyst with Aite Group and co-author of this report. Firms that fail to heed LRM regulatory imperatives run the risk of being forced to close shop; market participants will view these institutions as counterparty and funding risks ironies that cannot be overlooked.
D.C.