Company: IBM - Australia
Category: Liquidity Risk
Published: 12 November 2013
The financial crisis of 2007 - 2008, and the sustained volatility and spikes in systemic liquidity risk in the years since, have led both banking supervisors and major global banks to explore a range of avenues by which to address the emerging challenge of intraday liquidity risk.
This paper explores potential risk solutions to this challenge, establishing the historic context of liquidity risk management and the specific business problem of intraday liquidity risk. Referencing recent proposals by the Basel Committee with regard to both end-of-day and intraday liquidity risk, it will be seen how the thinking of leading market participants is shifting away from a traditional regulatory ratio-based approach - which imposes significant opportunity costs on the global financial system - and towards a legal payment approach. This shift requires the development of new risk architectures and stochastic modeling systems capable of capturing the effective intraday and near real-time funding banks require to be in business.