Traditionally, capital adequacy requirements have been imposed to ensure solvency.
However, that is not the only issue.
Thenext issue that will continue to engage substantial management attention is the management of liquidity.
Is liquidity an offshoot of economic crisis or management crisis?
I think a bit of both.
In short, banks and FIs are destined to be facing the unpredictability they like to believe as non-existent.
Liquidity crises, although recurrent, are yet to be effectively managed.
Responses are varied and such crises leave a trail of devastation clearly visible in the post crisis stage.
Issue of liquidity management requires much defter response than what is so far seen.
How the banks will graduate from “lazy banking” (as response to credit market growing more unsecure) to “crazy banking” (when it became more fashionable to jump onto retail lending bandwagon with some of the banks burning their fingers) to “edgy banking” is an issue which is yet to find a resolution.
The truth is that the liquidity management requires more sophisticated, comprehensive, nuanced and razor-sharp approach in order to prevent it from being the carrier of contagion.
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