Global Perspectives on Challenges and Opportunities: Liquidity Risk Management
The Journal • Global perspectives on challenges and opportunities
Liquidity risk management
10
by Richard Barfield and Shyam Venkat
PricewaterhouseCoopers
The Journal • Global perspectives on challenges and opportunities
Richard Barfield
Director, Advisory, Financial Services
PricewaterhouseCoopers (UK) Tel: 44 20 7804 6658 richard.barfield@uk.pwc.com Shyam Venkat
Partner, Advisory, Financial Services
PricewaterhouseCoopers (US) Tel: 1 646 471 8296 shyam.venkat@us.pwc.com 11
It is not listed on any exchange. Nor is it a line item on any financial institution’s balance sheet. Nonetheless, confidence is the financial system’s and every financial institution’s most valuable asset. The financial markets cannot hope to recover until confidence is restored. Banks need to recover their faith in each other and rebuild their reputations across their stakeholder base. They must also regain the trust of the regulators. For that to happen, banks must achieve two things. First, they will have to show that they have learned lessons from the liquidity crunch. Second, they will have to demonstrate that they are putting those lessons to good use. Simply going through the motions will not suffice: banks will have to prove that they are genuinely effecting change. In our view, this should be done against a clear strategy for liquidity risk management. This requires taking a longer-term perspective, detached from the day-to-day firefighting and conference calls that are currently consuming the days of most treasurers.
made profits in the quarter before they disappeared. Both were well-capitalised businesses. And yet, as a result of their failure to deal with their liquidity risk issues, they were simply swept away. Of course, Northern Rock and Bear Stearns were not the only banks with their minds elsewhere. The fact is, no one talked much about liquidity risk until last year. Although the regulators may have monitored banks’ management of the
Liquidity risk management
10
by Richard Barfield and Shyam Venkat
PricewaterhouseCoopers
The Journal • Global perspectives on challenges and opportunities
Richard Barfield
Director, Advisory, Financial Services
PricewaterhouseCoopers (UK) Tel: 44 20 7804 6658 richard.barfield@uk.pwc.com Shyam Venkat
Partner, Advisory, Financial Services
PricewaterhouseCoopers (US) Tel: 1 646 471 8296 shyam.venkat@us.pwc.com 11
It is not listed on any exchange. Nor is it a line item on any financial institution’s balance sheet. Nonetheless, confidence is the financial system’s and every financial institution’s most valuable asset. The financial markets cannot hope to recover until confidence is restored. Banks need to recover their faith in each other and rebuild their reputations across their stakeholder base. They must also regain the trust of the regulators. For that to happen, banks must achieve two things. First, they will have to show that they have learned lessons from the liquidity crunch. Second, they will have to demonstrate that they are putting those lessons to good use. Simply going through the motions will not suffice: banks will have to prove that they are genuinely effecting change. In our view, this should be done against a clear strategy for liquidity risk management. This requires taking a longer-term perspective, detached from the day-to-day firefighting and conference calls that are currently consuming the days of most treasurers.
made profits in the quarter before they disappeared. Both were well-capitalised businesses. And yet, as a result of their failure to deal with their liquidity risk issues, they were simply swept away. Of course, Northern Rock and Bear Stearns were not the only banks with their minds elsewhere. The fact is, no one talked much about liquidity risk until last year. Although the regulators may have monitored banks’ management of the