Quantifi, a specialist provider of risk, analytics and trading solutions, and OTC Partners, a boutique advisory firm, today announced the release of their whitepaper titled ‘Identifying Liquidity Risk for Financial Stability’. This whitepaper explores the importance of liquidity in functioning of financial markets and the increasing regulatory pressures on capital market firms to ensure strong liquidity risk management practices are being carried out.
The global financial crisis highlighted the importance of liquidity in functioning financial markets. Pre-2008, market participants received easy access to readily available funding and were ill-prepared for events that transpired during the credit crisis Failure to adequately assess and manage liquidity underpinned major market turmoil triggering unprecedented liquidity events and the ultimate demise of financial institutions previously thought too big to fail.
“Financial regulations including Basel lll and the Volcker Rule (Dodd-Frank act) have had deep impact on liquidity dynamics in terms of lending, profitability and the real economy. Managing liquidity risk presents unique challenges as it is different from other types of financial risks. The best line of defence is a strong liquidity policy and management framework where liquidity risk is robustly measure, monitored and managed.”Rahul Patel, Senior Business Consultant, Quantifi
“Managing liquidity risk is a critical issue for managers and investors. It is important for everyone to understand the types of liquidity risk that can exist and how to manage around them effectively,” comments Sol Steinberg, Founding Partner, OTC Partners. “With the introduction of Basel III requirements, managers and investors will have to do a better job than ever before of understanding liquidity risk. The increased demand for high quality liquid assets (HQLA) could mean that some participants could face a crunch during a liquidity event if they haven’t planned ahead. Effective transaction cost analysis will be crucial to portfolio management going forward.” continues Sol.
Almost 10 years on, awareness of liquidity risk has become the norm and its management essential to the viability of financial institutions. Looking ahead, effective risk management strategies and frameworks must address the major issues that compromised firms during the drawdown – liquidity should not be viewed as a short-term operational issue, but as a central component of long-term business strategies.
“Financial regulations including Basel lll and the Volcker Rule (Dodd-Frank act) have had deep impact on liquidity dynamics in terms of lending, profitability and the real economy. Manging liquidity risk presents unique challenges as it is different from other types of financial risks,” comments Rahul Patel, Senior Business Consultant, Quantifi. “The best line of defence is a strong liquidity policy and management framework where liquidity risk is robustly measure, monitored and managed. As firms look to adopt a more holistic view to liquidity risk management they are increasingly relying on technology providers that can provide a single integrated solution, incorporating reporting, stress and scenario testing, analytics and data management.” continues Rahul.
About OTC Partners
OTC Partners is a boutique market intelligence advisory firm. They focus on value add for partners, such as commercial development, segment analysis, business development, and research for the OTC derivatives market. Their mission is to move the capital markets forward, through regulatory changes, into a bright future. Located in New York, with a presence in Europe and Asia.
For further information, please visit www.theotcspace.com