Liquidity takes centre stage for banks and regulators

Regulators and banks have increased their focus on liquidity risk management significantly since the crisis. William Perraudin discusses some of the possible implications

Banks and regulators have long been fixated on capital and solvency. We have viewed risk almost exclusively through the prism of how it affects the likelihood of default. Bank business plans have revolved around being miserly with capital.

Of course, some institutions were clued up about liquidity. The better-run hedge funds were preoccupied with stresses – particularly ones that involved liquidity crises. Equally, the more astute investment banks paid plenty of attention to liquidity. It is