Are financial institutions being proactive in their treatment of liquidity risk?
Apra’s experience has been that regulated entities are reconsidering their liquidity risk management practices in light of lessons learned in the current turmoil. We expect valuable advances in liquidity risk management to emerge from this process. Risk Australia: Did the holistic stress tests deployed by financial institutions in the past few years manage to capture the liquidity risks associated with the current tough funding and credit market environment, following the seize-up in markets after the collapse of the US subprime mortgage market? Globally, few – if any – financial institutions conducted stress tests that reasonably reflected the turmoil we have experienced in terms of severity, duration and interdependencies. In particular, few institutions anticipated the complete seizing-up of some funding markets, such as securitisation. Risk Australia: What further work needs to be carried out by financial institutions to ensure their stress tests and scenario analyses accurately pi
