Filippo Ippolito, José-Luis Peydró, Andrea Polo, Enrico Sette, 10 May 2016

By providing liquidity to credit line borrowers and depositors, banks are potentially exposed to simultaneous runs on their assets and liabilities. This risk became a reality when the European interbank market froze in the summer of 2007. This column discusses the risk of double-bank runs, liquidity risk management by banks and the implications for the regulation of the financial sector, in particular Basel III. In 2007, banks with a larger exposure to the interbank market suffered a spike in drawdowns on their outstanding credit lines to firms, and were effectively exposed to a ‘double-run’. Importantly, this fragility was mitigated by active pre-crisis liquidity risk management by banks. 

Sergio Nicoletti-Altimari, Carmelo Salleo, 11 June 2010

The global crisis ruthlessly exposed the weakness of the market for liquidity. This column suggests that banks should issue securities with a “Roll-Over Option Facility” that would allow banks to keep funds if there is turmoil in liquidity markets. It adds that these facilities would help reallocate liquidity risk outside the banking sector, thus reducing the probability and severity of a crisis.

Charles Goodhart, Dimitri Tsomocos, Udara Peiris, Alexandros Vardoulakis, 18 February 2010

The global financial crisis has led many to propose regulatory measures that will reduce the idiosyncratic and systemic risk of banks. This column argues in favour of the suggestion by the Bank for International Settlements to block banks from paying dividends to shareholders or bonuses if their capital levels fall below a minimum threshold.

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