Stemming the flow

Liquidity risk

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The predominant view among both banks and prudential regulators internationally appears to be that banks do not need to hold capital - either regulatory or economic - against their liquidity risk exposures. There are very few dissenters. Pillar II of the new Basel II regulatory bank capital framework1 does say that "banks should evaluate the adequacy of capital given their own liquidity profile and the liquidity of the markets in which they operate", but that is all. No guidance is provided

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