Theory and regulation of liquidity risk management in banking

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Abstract

Liquidity risk is now more important than it used to be in the past. The financial crisis has emphasised the importance of liquidity risk to thefunctioning of banking and financial system. The paper presents a theoretical and regulatory investigation of two types of liquidity risk: funding liquidity risk and market liquidity risk. The paper analyses the different approaches to measure the impact of funding and market liquidity risk in the economics and management of banks. The paper provides also an analysis of the organisational implications of the asset and liability management perspective of liquidity risk. Liquidity risk does not need to be covered by equity but by an adequate volume of liquid assets and highly liquid securities. This is the reason why theregulation of the liquidity risk in banking is focused on liquidity ratio-based financial constraints.
Original languageEnglish
Pages (from-to)4-21
Number of pages18
JournalInternational Journal of Risk Assessment and Management
Volume19
Publication statusPublished - 2016

All Science Journal Classification (ASJC) codes

  • Business and International Management
  • Statistics, Probability and Uncertainty
  • Management Science and Operations Research

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