Risks Faced by Banks and Regulatory Countermeasures
The essay will analysis and discuss risk and regulation method for banks. There are different types of risks in bank operation; for instance, interest rate risk, credit risk, liquidity risk and operation risk. This essay will focus on the liquidity risk problem in bank and regulation countermeasure of liquidity risk. Regulators improved level of risk management after global financial crisis; therefore, the Basel Banking Supervision Committee put forward new principle to reduce bank risk. The key finding is new regulation from BaselⅢ to manage liquidity risk in this essay.
In recent years, banks became increasingly complex institutions and exposed to an intertwined set of risks. There are different types of risks in bank; it focuses on the liquidity risk in this essay. Banks faced more serious liquidity risk, in order to increase bank cash flow and liquidity assets. The liquidity risk plays an important role for commercial bank operation. The liquidity risk indicates that bank lacks of marketability of investment and cannot sale it quickly to prevent loss. (Nikolaou, 2009). The liquidity risk has two types, one is funding liquidity risk and another one is market liquidity risk. (Nikolaou, 2009). The strong of uncertainty and destructiveness are characteristics of liquidity risk; therefore, liquidity risk also called the most deadly risk for commercial banks. In 2008 global financial crisis, the liquidity risk was also one of trigger for Lehman Brother Bank bankruptcy. Liquidity risk problems become more and more important reason of bank failure; therefore, this is reason for author select liquidity risk to analysis. Regulators set up many policies to manage liquidity risk in banks. During the global financial crisis, although many banks had increased the level of capital requirement; however, banks still experienced difficulties because they failed to manage their liquidity assets...
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