Bernanke on "Liquidity Risk Management"
Federal Reserve Board Chairman Ben S. Bernanke spoke today at the Federal Reserve Bank of Chicago's Annual Conference on Bank Structure and Competition. His comments on "Liquidity Risk Management" include, "Another crucial lesson from recent events is that financial institutions must understand their liquidity needs at an enterprise-wide level and be prepared for the possibility that market liquidity may erode quickly and unexpectedly. Weak liquidity risk controls were a common source of the problems many firms have faced. For example, some firms' treasury functions were not given information from all business lines about either expected liquidity needs or contingency funding plans, in part because managers of individual business lines had little incentive to compile and provide this information. As is now widely recognized, many contingency funding plans did not adequately prepare for the possibility that certain off-balance-sheet exposures might have to be brought onto the firm's balance sheet."
