Top six liquidity risk management challenges for global banks

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The credit crisis has placed liquidity risk management front and center in the global banking industry, presenting some weighty challenges that global banks must address. Liquidity risk management is now a major focus for regulators, and global banks must navigate a range of regulatory requirements and guidance that is not always clear or well-aligned.

What is clear is that liquidity risk must be owned from the top of the organization down. Without maintaining a constant pulse on their liquidity position, banks can quickly face serious reputational damage or, worse, insolvency. From our perspective, there are six key challenges in effectively managing liquidity risk:

1. Moving from tactical stop-gap solutions to a long-term strategic model for risk management, and cascading the new governance structure through all levels of management.

2. Having clear guidance and requirements when global regulators are lacking alignment.

3. Committing huge resources to implement needed changes in liquidity risk management and regulatory compliance.

4. Re-thinking the viability of a business operating model that has traditionally relied on the wholesale funding markets to fund business growth.

5. Integrating stress-testing (vs. using a siloed stress-test approach) when complications arise between intra-day, short-term scenarios vs. longer term scenarios.

6. Projecting contractual cash flows for underlying transactions when some institutions manage millions of transactions.

View the archived EY liquidity risk management webcast to hear these challenges discussed in depth, and to gain insight on how the credit crisis has changed the way banks must address liquidity risk.