The liquidity link

Economic capital

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In August 2006, Risk - a sister magazine to Asia Risk - published an article in which I argued for the inclusion of liquidity risk as a potentially material contributor to unexpected losses requiring economic capital support.1 This was not a commonly held view at the time. It is worth noting that the article did not advocate a specific additional regulatory capital charge for liquidity risk, but focused on the determination of the appropriate amount of economic capital from a stockholders' value