The management of liquidity risk in financial groups.
This paper presents the results of a review by the Joint Forum's Working Group on Risk Assessment and Capital (the Working Group) of funding liquidity risk management practices at conglomerates engaged in banking, securities, and insurance activities. The review focussed on 40 large, complex financial groups with operations spanning national borders, financial sectors, and currencies. The majority of the financial institutions represented in the review were involved in at least two of the banking, securities, or insurance sectors. All observations are based on information and opinions provided by the firms through written responses to a survey, interviews, and presentations to the Working Group.
The review was designed to address five key questions:
- how large, complex banking, securities and insurance groups manage liquidity risks across jurisdictions, sectors, and subsidiary units, particularly in times of stress;
- the impact of regulatory and supervisory approaches on liquidity risk management practices and structures;
- the nature of the products and activities that give rise to significant demands for liquidity;
- assumptions that firms make regarding available sources of liquidity; and
- the scale of liquidity shocks that firms are prepared to address.
The purpose of this paper is to provide summary feedback to the firms that participated in the review, firms' supervisors, and other interested parties. This paper does not aim to identify best practices and/or to make recommendations for firms or supervisors in any of the three sectors. Any further work on the management and supervision of liquidity risk is left to the consideration of the parent committees (ie Basel Committee on Banking Supervision, International Organization of Securities Commissions, and International Association of Insurance Supervisors).
- Publication Date: May 2006
- Publication Type: Other
- Publication Status: Current
- Publication Category: Risk Management
- Number of Pages: 25
- Keywords: Liquidity Risk
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