Workshop at Liquidity Management in Financial Institutions Conference
Last week kept us busy with banking regulation topics. In addition to analysing the Swiss government’s “lex UBS” proposal (see our recent NZZ interview), I attended the 22nd Annual Liquidity Management for Financial Institutions Conference in London, where Orbit36 gave the conference workshop.
Capital and liquidity are equally important. In the workshop “A practical examination of the value of AI and ML in liquidity practices: How to incorporate lessons from SVB and Credit Suisse”, we discussed how the liquidity crises in 2022 and 2023 differed from previous crises and why they had to be resolved with different measures. In the case of Credit Suisse, a loss of trust driven by longstanding mismanagement, an unsustainable business model and a series of scandals ultimately led to acute liquidity stress.
Credit Suisse’s liquidity buffers were sufficiently large to withstand an initial run in October 2022. The LCR overall passed the real test, albeit with outflow rates for certain deposits higher than assumed in the framework. Weakened by this material outflows, Credit Suisse was no longer able to withstand a period of market stress induced by the collapse of two US regional banks and had to rely on liquidity assistance provided by the Swiss National Bank.
Several speakers highlighted the need for banks to complement LCR with their own, firm-specific scenarios. Intraday liquidity risk —which also played a crucial role in the Credit Suisse crisis—is currently high on the radar of many institutions. Participants were particularly concerned about the dynamics that instant payments can create. The ability to quickly monetise liquidity reserves and, if necessary, access central bank liquidity facilities becomes key and needs to be regularly practised.
Against this background, I highlighted in the last part of the workshop that AI can help identify vulnerabilities on the liability side and act as an early warning indicator of emerging outflows.
I would like to thank Marcus Evans for the renewed invitation to speak and for the excellent organisation of the conference.