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Topic: Liquidity risk

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	Liquidity Risk (Site not responding. Last check: 2007-10-14)
		In discussing the regulatory approach to liquidity risk it is important to distinguish between quantitative (pillar 1), qualitative (pillar 2) and disclosure (pillar 3) requirements.
		For example the stock liquidity approach that is at present used for large banks suffers from the defects that it only applies to sterling, it only accepts a narrow range of assets as stock liquidity assets and it is not the main way large banks actually manage their liquidity risk for internal risk management purposes.
		Second, it would create new divergences between the way in which liquidity risk was regulated and ways in which it was managed by firms for their own internal purposes, especially for the investment banking sector which typically uses an approach closer to the stock approach.
	www.fsa.gov.uk /Pages/Library/Communication/Speeches/2004/SP201.shtml (2497 words)

	Liquidity risk - Wikipedia, the free encyclopedia
		Liquidity risk arises from situations in which a party interested in trading an asset cannot do it because nobody in the market wants to trade that asset.
		Liquidity risk becomes particularly important to parties who are about to hold or currently hold an asset, since it affects their ability to trade.
		Liquidity risk is financial risk due to uncertain liquidity.
	en.wikipedia.org /wiki/Liquidity_risk (604 words)

	Liquidity risk and venture capital finance Financial Management (Financial Management Association) - Find Articles (Site not responding. Last check: 2007-10-14)
		We refer to technological risk as a choice variable in terms of the characteristics of the entrepreneurial firm in which the venture capitalist invests, and liquidity risk as the current and expected future external exit market conditions.
		That is, liquidity risk refers to the risk of not being able to effectively exit and thus being forced either to remain much longer in the venture or to sell the shares at a high discount.
		Liquidity risk is, of course, not the only type of risk that VCs face when deciding to invest in a particular project.
	www.findarticles.com /p/articles/mi_m4130/is_4_34/ai_n16083955 (873 words)

	Liquidity Risk
		Liquidity risk is the risk that the financial institution cannot settle an obligation for full value when it is due (even if it may be able to settle at some unspecified time in the future).
		CLS Bank, while eliminating the bulk of principle risk through its payment-versus-payment design, retains significant liquidity risk, as funding is made on a net basis, and pay-in obligations may need to be adjusted in the event that a counterparty is unable to fund its obligations.
		To manage and control liquidity risk, it is important for financial institutions to understand the intraday flows associated with their customers’ activity to gain an understanding of peak funding needs and typical variations.
	www.ffiec.gov /ffiecinfobase/booklets/Wholesale/13.html (388 words)

	FRB: Speech, Ferguson -- Credit risk management: Models and judgment -- October 16, 2001
		That is the risk that several firms are holding the same positions, and all of those firms are basing their value-at-risk estimate on the assumption that these positions could be liquidated more quickly than they actually could.
		Prudent risk managers are probably aware of this limitation in their models--more aware now than they were before the LTCM crisis, perhaps--and all risk managers should try to manage this risk as best they can.
		Although operational risk is not easily susceptible to formal modeling, the events of September 11 have highlighted its importance to market participants, to financial institutions, to the financial utilities, and to the regulators and supervisors.
	www.federalreserve.gov /boarddocs/speeches/2001/20011016/default.htm (3172 words)

	[No title]
		Liquidity risk includes the inability to manage unplanned decreases or changes in funding sources.
		Liquidity risk also arises from the failure to recognize or address changes in market conditions that affect the ability to liquidate assets quickly and with minimal loss in value.
		The liquidity position is not expected to deteriorate in the near term.
	www.bankersonline.com /tools/riskmgt_liquidityrisk.doc (912 words)

	Liquidity Risk
		Liquidity risk may be a problem because a given position is very large relative to typical trading volumes or because market conditions are unsettled.
		Liquidity risk is usually reflected in a wide bid-asked spread and large price movements in response to any attempt to buy or sell.
		Liquidity risk is usually managed by limiting holdings of illiquid positions, by matching asset and liability maturities, and by limiting any maturity gap.
	www.riskinstitute.ch /00011942.htm (131 words)

	Stochastics on the Street: Models of Liquidity Risk
		The term “risk” is often bandied about in financial circles, and at times it is hard to pin down what kind of risk one is talking about.
		With less liquidity, one gets piecewise linearity, with two pieces, and either no jump when the slope changes (that is, linear with a kink), or jump linear, with the jump corresponding to a bid-ask spread.
		Liquidity is now much closer to being understood by the academic community, and it should not be long before these ideas are adopted by industry, which will be of course the ultimate test of their worth.
	www.fenews.com /fen49/stochastics-street/stochastics-street.html (1491 words)

	Stressed Markets and Liquidity VAR
		VAR assumes that the liquidation of a position will not itself have an impact on the market, that positions can be liquidated in a short period of time, and that the bid-offer spread will remain steady.
		But, with a few exceptions, the new methodologies say more about the liquidity risk of exiting large positions in normal markets, and the problem of optimising exit strategies in such markets, than about the liquidity risks of abnormal markets.
		Meanwhile, the long-term drift in the banking industry away from funding based on customer core deposits, and towards money market funding sources of various kinds, means that liquidity risks of various kinds are on an upward trend.
	www.erisk.com /Learning/JigSaw/market_liquidity.asp (621 words)

	Risk Management for Hedge Funds from the 2005 "On The Frontiers of Financial Engineering and Risk Management Special ...
		On the asset side, liquidity risk is a function of the size of the positions as well as of the price impact of a given size trade for the instrument.
		Liquidity risk, however, is also an issue when the fund positions grow very large, even in liquid markets.
		Investors should be aware that liquidity risk may be important for some categories of hedge funds and may lead to biases in risk measures.
	www.fenews.com /fen46/front-sr/jorion/jorion.html (1155 words)

	The Liquidity Conundrum
		Robert Fiedler, a Frankfurt-based liquidity specialist with software house Algorithmics, says that while market liquidity risk and the funding risk built into a bank’s balance sheet are often treated as separate problems, they can become joined at the hip when things go wrong.
		Markets become artificially liquid as prices rise and participants are drawn in, then turn unpleasantly sticky as they all try to take flight at the same time.
		VAR assumes that that the liquidation of a position will not itself have an impact on the market, that positions can be liquidated in a short period of time and that the bid–offer spread will remain steady.
	www.erisk.com /ResourceCenter/Market/TheLiquidityConundrum.asp (914 words)

	Liquidity Risk
		Liquidity risk is the current and potential risk to earnings or capital arising from a financial institution’s inability to meet its obligations when they come due without incurring unacceptable losses.
		Liquidity risk related to payment systems is the risk that the financial institution cannot settle an obligation for full value when it is due but only at some unspecified time in the future.
		Liquidity problems can result in opportunity costs, defaults on other obligations, or costs associated with obtaining the funds from another source for some period of time.
	www.ffiec.gov /ffiecinfobase/booklets/Retail/retail_03d.html (108 words)

	Risk Holes and Liquidity Risk
		A liquidity vacuum is the nightmarish scenario that occurs when bid/offer spreads for the financial instruments, particularly derivative instruments, widen out to levels that make it prohibitively expensive to deal.
		A risk hole occurs in a portfolio of assets if, for a specific region of one or more parameters relevant to the pricing of the assets in the portfolio, the exposure to great loss is localized and unhedged.
		Managing risk means, in many cases, avoiding risk holes and smoothing exposures so that they fit into reasonable tolerances, while still positioning ourselves to take advantage of favorable market moves if and when they occur.
	www.finpipe.com /liquidity.htm (954 words)

	Market liquidity - Wikipedia, the free encyclopedia
		The supremely liquid asset is a national currency certificate in the country of its origin, assuming that the currency is not depreciating extremely rapidly.
		Structural liquidity risk, sometimes called funding liquidity risk, is the risk associated with funding asset portfolios in the normal course of business.
		Contingent liquidity risk is the risk associated with finding additional funds or replacing maturing liabilities under potential, future stressed market conditions.
	en.wikipedia.org /wiki/Market_liquidity (707 words)

	Liquidity, Risk Taking, and the Lender of Last Resort - Rafael Repullo - September 2005 - International Journal of ...
		The bank is subject to a capital requirement and chooses the liquidity buffer that it wants to hold and the risk of its loan portfolio.
		The equilibrium choice of risk is shown to be decreasing in the capital requirement and increasing in the interest rate charged by the LLR.
		Moreover, when the LLR does not charge penalty rates, the bank chooses the same level of risk and a smaller liquidity buffer than in the absence of an LLR.
	www.ijcb.org /journal/ijcb05q3a2.htm (167 words)

	2. Liquidity risk
		Market liquidity risk is the risk that a position cannot be eliminated quickly by either liquidating the instrument or by establishing an offsetting position.
		To understand the market liquidity risk arising from an institution's derivatives activities, supervisors would benefit greatly from a picture of the aggregate size of the market in which the institution is active.
		Funding risk is the risk of derivatives activities placing adverse funding and cash flow pressures on an institution.
	riskinstitute.ch /145600.htm (845 words)

	Liquidity
		An institution is said to have liquidity if it can easily meet its needs for cash either because it has cash on hand or can otherwise raise or borrow cash.
		The liquidity of a market is often measured as the size of its bid-ask spread, but this is an imperfect metric at best.
		Examples of assets that tend to be liquid include foreign exchange, stocks traded on the New York Stock Exchange or on-the-run Treasury bonds.
	www.riskglossary.com /articles/liquidity.htm (483 words)

	Liquidity Risk Review
		Liquidity and the lack thereof is probably the risk that has traditionally received the least focus and yet has inflicted the greatest damage.
		Unfortunately, in the case of the all too genuine complexities of hedge fund liquidity, the urge towards radical simplification has often proven an irresistible temptation.
		Evaluated market, credit, operational and liquidity risk management policies, practices and approach for an emerging market bank.
	www.cmra.com /html/liquidity_risk.html (305 words)

	Currency risk (Site not responding. Last check: 2007-10-14)
		In that case, an institutional investor is subject to not only price risk of asset selected (for example, stocks), but also the currency risk of its country base currency to currency of investment asset denomination.
		Current currency risk is the risk of a floating currency rate change.
		VaR calculation technology is important for both correct evaluation of possible risk resulting from converting one currency to another, and optimal reserve capital calculation in case of a strong price move.
	www.finflowholdings.com /ffh/currency_risk.shtml (818 words)

	Liquidity Risk Management
		Liquidity means being able to get the cash you need when you need it, but it also means that others must perceive you can do this so that cash remains available to you.
		In many banks, liquidity is taken for granted until some crisis makes it a focal point for bankers, regulators, and the public.
		Too often liquidity plans and policies are put in place in response to such events with little consideration of the real questions bankers need to address.
	www.sheshunoff.com /store/394.html (228 words)

	Liquidity risk (Site not responding. Last check: 2007-10-14)
		In terms of losses, asset liquidity risk could be evaluated as the amount of value loss ("slippage") at the time of the asset sale.
		Asset liquidity risk also strongly depends on the ratio between the position size and the entire market size (daily market turnover).
		Finflow Holdings Ltd. has in its arsenal an effective financial engineering technology for risk evaluation Value at Risk (VaR), which is applied, in a modified version, to quantitatively estimate a liquidity risk in different financial instruments.
	www.finflowholdings.com /ffh/liquidity_risk.shtml (914 words)

	GARP Risk Review, November 2005, Goodman, Liquidity Risk Management
		Liquidity risk management in the energy industry has grown more and more complex, thanks in large part to provisions that can potentially cause liquidity fl holes.
		Liquidity risk managers in the financial services and energy industries must work feverishly to evaluate the salability of assets and to identify potential liquidity problems.
		In the cover story, Gordon Goodman tracks the evolution of liquidity risk management in the energy industry and analyzes the development of liquidity provisions that have increased the difficulty of buying and selling energy commodities.
	www.garpdigitallibrary.org /display/product.asp?pid=1092 (362 words)

	Recent Evolution of Large-Value Payment Systems: Balancing Liquidity and Risk Federal Reserve Bank of Kansas City - ...
		Changes to the design or to the risk management policies of such systems were needed, in part, due to the growth in the value of transactions on these systems.
		Settlement risk is generally used to designate the risk that settlement in a transfer system will not take place as expected, either because of credit risk or liquidity risk (BIS 2003).
		A system's risk depends on how likely a participant is to default on obligations to other participants or to the system's settlement institution.
	www.findarticles.com /p/articles/mi_qa3699/is_200501/ai_n13618052 (889 words)

	Liquidity Risk - Banking Information, Federal Reserve Bank of Chicago (Site not responding. Last check: 2007-10-14)
		Liquidity at most Seventh District banks is considered satisfactory.
		While the availability of diverse funding sources can reduce liquidity risk, traditionally defined liquidity metrics (such as loans to deposits, non-core funding dependence and an overall "liquidity ratio") may misrepresent the true liquidity position of a bank.
		Reliance on inaccurate liquidity metrics for decision-making could result in a false sense of security, faulty decisions or decisions that are not cost-effective.
	www.chicagofed.org /banking_information/liquidity_risk.cfm (289 words)

	liquidity risk Definition
		The risk that arises from the difficulty of selling an asset.
		Unfortunately, an insufficient secondary market may prevent the liquidation or limit the funds that can be generated from the asset.
		Some assets are highly liquid and have low liquidity risk (such as stock of a publicly traded company), while other assets are highly illiquid and have high liquidity risk (such as a house).
	www.investorwords.com /2841/liquidity_risk.html (96 words)

	KRM - Liquidity Risk Solution
		And, the new Basel II capital guidelines put risk in pillar II where it will be the focus of close scrutiny from examiners.
		Kamakura's Liquidity Risk solution is closely linked to our interest rate risk modeling capability.
		Further details on the Kamakura's Liquidity Risk solutions can be obtained by contacting Kamakura at sales@kamakuraco.com or tel.
	www.kamakuraco.com /Liquidity.htm (469 words)

	Liquidity Risk Premia in Corporate Bond Markets
		We show that liquidity risk is a priced factor for the expected returns on corporate bonds.
		In terms of expected returns, the total estimated liquidity risk premium is around 0.45% for US long-maturity investment grade bonds.
		For speculative grade bonds, which have higher exposures to the liquidity factors, the liquidity risk premium is around 1%.
	www.defaultrisk.com /pp_liqty_33.htm (167 words)

	Technology innovation to foil liquidity risk (Site not responding. Last check: 2007-10-14)
		The RBI, in its annual report, highlighted the incidence of technology risk translating into a liquidity risk, resulting in chaos in the banking sector.
		In its role as the lender of the last resort, the central bank has realised the need to distinguish between solvency and liquidity problems.
		"While the central bank's role in providing liquidity support instills confidence to the financial system, the actual action requires the central bank to distinguish between solvency and liquidity problems," the RBI report stated.
	www.rediff.com /money/2003/aug/28rbi4.htm (365 words)

	LIQUIDITY RISK MANAGEMENT MASTERCLASS
		Where does liquidity risk management fit in relation to the management of other risks in your institution?
		Liquidity and payments collateralisation – dual use of liquid assets
		Exploring how the management of liquidity risk effects the risk rating of financial organisations and the measurement criteria used by the agencies
	www.garp.com /events/liquidityrisk/programme.htm (308 words)

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