Beyond Valuation: Basel III and Its Impact on Managing Illiquid Assets
Michael Schouten, Garry Smith and Vijay Krishnaswamy
Introduction to 'Managing Illiquid Assets'
A Brief History of Valuation: A Personal View
Case Study: Funding and Liquidity Considerations in the US Residential Mortgage Market
Foundations of Liquidity Risk Management
Valuation of Illiquid Assets: Third Party Sources
A Model for Estimating the Liquidity Valuation Adjustment on OTC Derivatives
Global Valuation and Dynamic Risk Management
A Regulatory Perspective on Prudent Valuation and Best Practice in Product Control
Beyond Valuation: Basel III and Its Impact on Managing Illiquid Assets
Model Risk, or the Risk of Using Models
Stress Testing in Financial Institutions
Case Study: Risk Governance and Management Practice of the Hana Financial Group
The fundamental nature of maturity transformation (ie, borrowing short-term money and investing in long-term projects) and its core relevance to a bank’s basic business model means that banks are inherently vulnerable to liquidity risk. By the end of the 20th century, increased sophistication of financial markets had added to the complexity and significance of liquidity risk management. The altered funding profile of bank balance sheets in recent times, where more stable retail funding was supplemented by wholesale funding from capital markets and securitisation alongside generally more complex financial instruments, was generally not matched by increased sophistication of liquidity risk management practices. At some banks, the treasury function was unaware of the true nature of contingent liquidity risks embedded in new products, or that evolving business practices would alter the contingent liquidity risk of existing products.
The global financial crisis that began in 2007 exposed weaknesses in liquidity risk management of many firms right across the
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