#07-35
Liquidity Risk Management
C.A.E. Goodhart
Abstract: Liquidity and solvency are the heavenly twins of banking, frequently indistinguishable. An illiquid bank can rapidly become insolvent, and an insolvent bank illiquid. When the Basel Committee on Banking Supervision was first established in 1975, its Chairman, George Blunden, at its initial meeting vowed to try to underpin the capital and liquidity adequacy performance of the main international commercial banks. Indeed, the prior downwards trend in banks’ capital ratios was halted and then reversed by Basel I. The advantages of having done so are clearly revealed by the stronger capital positions of most banks in the current context.
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