Catching a cold

Liquidity Risk

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Events at Northern Rock in September last year starkly revealed the folly of underestimating the dangers posed by liquidity risk and over-relying on the wholesale markets for funding. Fears of subprime exposures in underlying portfolios prompted investors to shun the previously unstoppable securitisation market, causing new issuance to grind to a halt. Unable to raise new funds, and with billions of pounds worth of liabilities falling due, the UK building society had to turn to the Bank of Engla

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