A look at the evolving regulations for liquidity management and the business and technology implications for global financial services institutions

Before the global financial crisis in 2007, the financial services industry enjoyed ample liquidity and liquidity risk and its management were not a high priority area for banks. During the financial crisis, banks struggled to maintain adequate liquidity and required significant liquidity from central banks to support themselves and the financial system. A number of banks failed or had to be bailed out even after extensive support by local governments and central banks, and the global market upheaval showed how quickly liquidity risks can burn-up banks’ available sources of funding.

This paper examines how financial services institutions are managing their liquidity risk through liquidity measurement and the maintenance of optimal liquidity buffers to drive effective liquidity risk management across their organisations. Since the crisis began, liquidity risk management and supervision has moved up the global regulatory agenda of international regulatory bodies. In response to the new regulations, banks have already started building their new liquidity management frameworks. Leading banks have indicated that they will comply with the new requirements sooner than required to reassure markets, clients, and the rating agencies.