Regulators across the world may soon be pooling information in an attempt to police global banks’ liquidity risk. Managing liquidity risk, which was not high up on the regulatory or banking agenda before the crisis, is likely to come to the fore in the wake of the agenda before the crisis, is likely to come to the fore in the wake of the global credit crunch, sayd Bob McDowall, research director, Europe for analysts firm TowerGroup. “Regulators will want to see a demonstration of liquidity resources banks can call upon in time of stress.’ He explains.
McDowall believes national regulators will need to build systems in order to exchange information so that they can exercise information oversight of banks’ liquidity risk management. ‘Regulators will need to take a more forensic approach to information they send and receive’ he adds.
Bank will also need to make fundamental changes to the way they manage risk. ‘You cannot look at risk in isolation or by asset class or geography. ‘McDowall continues. Although most global bank today do not have the ability to measure and manage liquidity risk on an enterprise-wide basis, McDowall says they need to be able to take a view at any time as to what their risk and liability are. ‘It need to be up to the minute and not end of day or periodically during the day,’ he says. In essence, bank will need to move to a real-time, more predictive approach to risk management, which require much more capturing of information and analysis of prices and behavior pattern.
However, according to the Tony White, managing director, product and R&D at financial software vendor wall street system, gaining that real-time view of liquidity will be challenging asd most banks risk management systems are generally kept in a separate “silo” and do not provide a clear overview of information pertaining to credit and other interdependencies. One recent example of the failure of the risk management system arose during the collapse of lehman brother, when many bank did not have the ability to stop payment from going to the ailing investment bank. ‘ The technology (within banks) is all over the place,’ says White. ‘ Going Forward, it will have to be consolidation.’
McDowall believes national regulators will need to build systems in order to exchange information so that they can exercise information oversight of banks’ liquidity risk management. ‘Regulators will need to take a more forensic approach to information they send and receive’ he adds.
Bank will also need to make fundamental changes to the way they manage risk. ‘You cannot look at risk in isolation or by asset class or geography. ‘McDowall continues. Although most global bank today do not have the ability to measure and manage liquidity risk on an enterprise-wide basis, McDowall says they need to be able to take a view at any time as to what their risk and liability are. ‘It need to be up to the minute and not end of day or periodically during the day,’ he says. In essence, bank will need to move to a real-time, more predictive approach to risk management, which require much more capturing of information and analysis of prices and behavior pattern.
However, according to the Tony White, managing director, product and R&D at financial software vendor wall street system, gaining that real-time view of liquidity will be challenging asd most banks risk management systems are generally kept in a separate “silo” and do not provide a clear overview of information pertaining to credit and other interdependencies. One recent example of the failure of the risk management system arose during the collapse of lehman brother, when many bank did not have the ability to stop payment from going to the ailing investment bank. ‘ The technology (within banks) is all over the place,’ says White. ‘ Going Forward, it will have to be consolidation.’
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