Risk analysts often forget that liquidity risk is the symptom that a firm has some other severe disease, be it credit risk, market risk, interest rate risk, fraud or something else. Default becomes inevitable when it becomes apparent that an institution cannot liquidate its assets with sufficient speed or volume to meet cash needs from liabilities that have been withdrawn or which will not be rolled over. For an institution which hasn’t failed, data from institutions that have failed or which have had “near death experiences” usually provide more insights on liquidity risk than the institution’s own history of liability amounts and costs.
Under the Dodd-Frank Act of 2010, the Board of Governors of the Federal Reserve was required to disclose the identities and relevant amounts for borrowers under various credit facilities during the 2007-2010 financial crisis. These credit facilities provide perhaps the best source of data about liquidity risk and funding shortfalls of the last century. This data is available for purchase from Kamakura Corporation and is taken from the Kamakura Risk Information Services Credit Crisis Liquidity Risk data base..
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