![]() Against this risk, the planning of a solvent wind down (SWD) strategy can provide a timely release of liquidity and capital (via risk weighted assets reduction) to restore banks’ viability and trust. In times of market stress, contagion can materialise quickly with a very substantial impact from a liquidity perspective. Why a keen understanding of trading books makes resolution stronger Trading books also acted as a significant contagion channel, as global footprint of these activities exacerbated the diffusion of the financial crisis across continents. Complex and interlinked positions held in large derivative and trading portfolios hid substantial underlying market and liquidity risks. The global financial crisis stressed vulnerabilities in banks’ practices of trading books risk management. A keen understanding of what’s in trading books and of how to wind them down post resolution while staying solvent is key for a healthy and resilient banking sector.ĭrawing the lessons from past financial crises
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