Financial crisis and new dimensions of liquidity risk: rethinking prudential regulation and supervision

Elisabetta Gualandri (), Andrea Landi and Valeria Venturelli ()
Additional contact information
Andrea Landi: Università di Modena e Reggio Emilia

BANCARIA, 2009, vol. 7, 24-42

Abstract: This paper aims to stress the importance of market liquidity for the stability of the financial system, emphasizing the pivotal role played by liquidity risk in the development of the current financial crisis, pointing out the flaws of regulation and supervision and stressing the need for their reform. We first investigate the evolution of the concept of liquidity and the nexus between the transformations of financial systems and their increased vulnerability to liquidity risks. Then we focus on the causes of the emergence of liquidity risk in the ongoing financial crisis. We point out two intertwined processes: firstly, the huge increase in financial assets stemming from the shift to an “originate-to-distribute” intermediation model; secondly, the growth of a parallel financial circuit. After this, we focus on the main lessons for regulation and supervision: the case for adjustments to Basel 2, market liquidity and Otc markets, architecture of supervisory authorities and perimeter of controls, coordination, of national liquidity regimes, at least for cross-border groups.

JEL-codes: D53 E58 F37 G1 G18 G21 G24 G28 (search for similar items in EconPapers)
Date: 2009
References: Add references at CitEc
Citations: View citations in EconPapers (36)

Downloads: (external link)
http://www.bancariaeditrice.it/prodotti/vedi/prodo ... /bancaria-n-7-8-2009 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ban:bancar:v:7:y:2009:m:july:p:24-42

Access Statistics for this article

BANCARIA is currently edited by Bancaria Editrice - the publisher of the Italian Banking Association

More articles in BANCARIA from Bancaria Editrice
Bibliographic data for series maintained by Francesco Emiliano Tani ().