Statement of the Financial Economists Roundtable: How to Manage and Help to Avoid Systemic Liquidity Risk

9 Pages Posted: 25 Mar 2012

Date Written: Winter 2012

Abstract

In the summer of 2010, when legislative and regulatory responses were being finalized to address financial institution and market liquidity problems, the Financial Economists Roundtable, a group of prominent financial economists over 50 years old, convened with the aim of developing principles that would address both market‐wide and institution‐specific liquidity problems exposed by the 2007–2008 financial crisis. As summarized in this statement, the eight principles that came out of this meeting should be used to assess the strengths and weakness of not only the Dodd‐Frank legislation that was passed, but also of the regulatory proposals to implement the law as they continue to emerge. Among the eight principles endorsed, the Roundtable urges regulators to seek to ensure that:. The Roundtable also concluded that the crisis revealed critical weaknesses in the tri‐party repo market, and recommended consideration of reforms to the market that include moving such transactions to organized exchanges, and reducing dependence on the two private sector financial institutions that operate that market's infrastructure. Additional useful reforms would include limiting daylight overdrafts, imposing margin requirements on counterparties to limit systemic risk and prohibiting re‐hypothecation. Finally, the Roundtable believes that improved transparency of transactions and prices would enhance monitoring by responsible regulatory agencies.

Suggested Citation

Eisenbeis, Robert Eisenbeis, Statement of the Financial Economists Roundtable: How to Manage and Help to Avoid Systemic Liquidity Risk (Winter 2012). Journal of Applied Corporate Finance, Vol. 24, Issue 1, pp. 60-66, 2012. Available at SSRN: https://ssrn.com/abstract=2028497 or http://dx.doi.org/10.1111/j.1745-6622.2012.00365.x

Robert Eisenbeis Eisenbeis (Contact Author)

Independent ( email )

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