Article: Identifying Liquidity Risk for Financial Stability

24 May 2017 | Sol Steinberg

The global financial crisis highlighted the importance of liquidity in functioning financial markets. Pre-2008, market participants received easy access to readily available funding and were ill-prepared for events that transpired during the credit crisis. Failure to adequately assess and manage liquidity underpinned major market turmoil, triggering unprecedented liquidity events and the ultimate demise of Bear Stearns, Lehman Brothers and other financial institutions previously thought too big to fail.

Identifying Liquidity Risk for Financial Stability


The global financial crisis has promoted a renewed focus on managing liquidity risk. Lack of liquidity, in the midst of all the panic, left many firms unable to raise sufficient funding, forcing them to liquidate their positions at huge losses, further fueling the fear of a systemic crisis. In an attempt to avert a meltdown of the banking system and deep global economic recession, central banks had little choice

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