Global liquidity: Is it a problem?
Held on Thursday, September 24
Nick Forrest (PwC)
Brad Carr (Institute of International Finance)
Peter Hahn (Cass Business School)
Mark Bearman (AFME)
Con Keating (EFFAS)
Report - Global financial markets liqudity study (PwC)
It was not exactly beach reading, but, last month, PwC published the results of an important study into global financial markets liquidity.
This is a hefty (and impressive) piece of work. At the risk of oversimplification, the main points are:
- that there has been a measurable reduction in financial market liquidity since the 2007/09 crisis;
- that much of this is the result of banks deliberately de-risking – ie. de-leveraging and unwinding non-performing and capital-intensive credit books;
- that much of this is attributable to specific regulatory initiatives that have (inadvertently) undermined banks’ traditional role as market-makers; and
- that this withdrawal of liquidity has done significant economic damage.
In other words, it is all very important stuff… I am, therefore, delighted that the principal author of the report, Nick Forrest, has agreed to walk us through the argument – and the report’s conclusions. I am also delighted that we have been able to put together a distinguished panel to support (or take issue with) Nick’s analysis:
- Brad Carr is deputy director for regulatory affairs at the Institute of International Finance in Washington, where he joined in 2014 from National Australia Bank. He has worked closely with the IIF’s task force on credit risk modelling.
- Mark Bearman is a director in AFME’s prudential regulation division, where he focuses on regulatory capital and liquidity standards arising from Basel III/CRD4. Before joining AFME, he was a manager in KPMG’s risk and regulatory affairs practice.
- Peter Hahn is senior fellow and senior lecturer in banking at Cass Business School. He was Senior Adviser to bank supervision at the Bank of England (and FSA) from 2009-2014, and, before going into academia, had a long career as a capital markets and corporate finance banker in New York, finishing his career in London with Citigroup.
Con Keating is a former bond trader and investment manager. He chairs the Research Commission of the European Federation of Financial Analysts Societies and chaired the Institute and Faculty of Actuaries working party on liquidity.
This is an important report – and its endorsement by the IIF and GFMA means that it has a lot of muscle behind it. It is also 152 pages, with lots of numbers. So, if you want a quick crib – or if you really have read the whole thing – this is the place to be.