Liquidity risk: a dummies' guide


This comprehensive liquidity risk dummies’ guide from JWG provides a perspective from the ‘starting line’, when global regulators commenced their liquidity consultation processes.  It examines their rapid movement towards the new liquidity standards and the status of the initiatives from global, European, Asian, Australian and UK regulators.  

The UK’s liquidity standards, which have now been finalised through their PS09/16, have been methodically discussed at a high level and further broken down into six key requirements, each being individually analysed.  The requirements have further been mapped to each category of firm and the corresponding implementation timeline, examining what this will mean, and the impact on imperatives and business models for the firms.    

Finally, the report sets out a comprehensive list of questions covering the key points that firms need to consider in order to implement the liquidity standards.   

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Recipients of this report will gain a broad understanding of:

►      The perspective from the starting line with an assessment of the ‘old’ UK liquidity standards and its inadequacies

►      The global move towards new standards in liquidity risk management driven by global, European, Australian, Asian and UK regulators

►      Problems being addressed and the principles of approach by the UK’s FSA and other regulators

►      Firms’ readiness to implement the standards and the potential implications on their imperatives

►      Potential changes to firms’ business models, as assessed by the LiRAN reference architecture capabilities

►      The FSA PS09/16’s  liquidity regime mechanics, broken down into six key requirements and the corresponding questions to consider

►      The firm categories affected by the scope of the regime and their associated requirements, outlining what this means for UK financial services

About the author: Amrita Pattni is a research analyst at JWG.  She recently completed her thesis based on an analysis of the path to Solvency II and its implications, with a key focus on risks and regulation.  She led the JWG research on liquidity risk and regulation, with banks and technology vendors, for 6 months.  This report is part of three interlocking research projects conducted during summer 2009, in pursuit of new risk infrastructure.  Amrita qualified in the UK with a degree in BSc Actuarial Science, during which she undertook an internship at Ernst & Young LLP.  She is currently pursuing her masters in Actuarial Management at Cass Business School, London.


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