Liquidity Measurement and Management in the SEACEN Countries

Many past financial episodes have highlighted the importance of liquidity for the well-functioning of the financial system. The recent global financial crisis which was unprecedented in scale and scope is no different. A well known reason for the severity of the crisis lies in the propagation of original shock that is compounded by extreme bank funding fragility, forcing fire sales across all markets. The funding of some banks has shifted towards a greater dependence on the capital markets. These wholesale funding sources such as commercial papers, repurchase agreements, and other commercial money market instruments, as the recent financial crisis illustrates, tend to be more volatile than traditional retail deposits and may pose additional challenges to liquidity risk management which is important for the long-run viability of a bank.