RiskTech Forum

SAS: From Dramatic Drought to Fluid Finance

Posted: 24 August 2009  |  Source: SAS

The story of the global financial crisis is a well-told one – and it’s a story that highlights major shortcomings in liquidity risk management. the causes were the macro-economic imbalances that had developed over the past decade or so, along with high-risk financial innovation of little social value. this volatile mix was made worse by flaws in the capital and liquidity regulations governing banks, and a mistaken belief that markets were ultimately rational and self-correcting.

The effect was the us subprime crisis of mid-2007, closely followed by an international“credit crunch,” plummeting asset values and a “liquidity drought.” this in turn resulted in the failure or near-failure of major financial institutions in the us and europe, financial market turmoil and the global economic recession we now find ourselves in. things would be even worse if it had not been for drastic government and central bank action to prevent major banks collapsing, inject capital into the financial system, and provide funding guarantees.

Thankfully, we are now on the road to recovery. governments, regulators and financial sector firms have identified the remedies and are busy implementing them. high on the list of priorities is the need to strengthen risk management and supervision, and increase the amount and quality of capital and liquidity in the global financial system  to provide more adequate safety margins.

Liquidity management has been given a leading role. Firms are enhancing their liquidity flows, managing liquidity risks more effectively, building up bigger cushions of liquid assets and improving access to liquidity funding. they are creating a well-understood and resilient liquidity culture. Regulators, meanwhile, are introducing new liquidity adequacy standards and beefing up supervision to ensure those standards are met.

Liquidity risk management has therefore entered a new era. the intention is that future liquidity shortages will be less severe, and that when shortages do occur firms will be in a better position to cope.

This publication is aimed at risk directors in banks and investment firms who have already entered, or are about to enter, this new era. it starts by outlining the failings of liquidity risk management, and summarizes the solutions recommended by the industry and the official sector. Chapter 2 goes on to explain how those solutions can be developed and implemented, using the full power of business analytics.

This is where sas has a role to play. it is the recognized leader in business analytics solutions and services, delivering insight to allow business leaders to make fact-based decisions on strategy and operations. More than 3,000 financial institutions worldwide, including 97 percent of banks in the FoRtune global 500®, use sas® Business analytics software.

Better liquidity risk management is an aspiration for every firm. this aspiration can be met using the capabilities of business analytics.

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