Risk: What do you think has been the most significant challenge in risk management in 2008?
Robert Park: The financial crisis of 2008 has led to the realisation that financial institutions had woefully underestimated liquidity risk and assumed that they would always be able to raise the funding required to satisfy contingent obligations. Many in the industry had not recognised that the supply of liabilities to a financial institution also depends on the default probability of the financial institution itself. Over the last 12 months, the industry has begun to focus on the processes and management as well as the models used to assess liquidity risk and other risks of a low-frequency, high-impact nature. With the publication of the revised Principles for Sound Liquidity Risk Management and Supervision in June 2008, the Basel Committee on Banking Supervision has shown that regulatory authorities have recognised the need to improve liquidity risk management practices. There is also an industry-wide recognition of the need for quantitative analysis tools and technology that can be used to bring liquidity into enterprise-wide risk frameworks. The challenge with liquidity risk is that, unlike credit and market risk that are well known and can be modelled using historical data, there is a shortage of suitable data for banks. The most challenging characteristic of liquidity risk is its lowfrequency, high-impact nature. This has implications.
More on Technology
Internal teams' concerns around data security hinders adoption, Sibos attendees told
Intraday liquidity reporting underpins rulebook created by the Liquidity Implementation Task Force to support BCBS compliance
'Ethical hacking' seeks to develop people as a point of a system's strength
Wipro's Sukant Paikray offers advice on how firms can better address the increasing demand for higher data quality
Sign up for Risk.net email alerts
Sanjay Sharma talks about risk transparency and how his book helps achieve it.
A five-minute formula from Alexander Denev that takes you through a simple probabilistic graphical model and explains how and why these are used. Find out more about the ground-breaking book, Probabilistic...
Industry leader Vincent Kaminski discusses the challenges faced by energy markets and his new book, Managing Energy Price Risk, 4th Edition.
Momtchil Pojarliev talks about his book, The Role of Currency in Institutional Portolios, currency investing and the potential role of currencies in institutional portfolios.
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.