Market liquidity and bank capital

Speech by Mr Hyun Song Shin, Economic Adviser and Head of Research of the BIS, at the "Perspectives 2016: Liquidity Policy and Practice" conference, AQR Asset Management Institute, London Business School, 27 April 2016.

Market liquidity and its connection with dealer funding liquidity was at the centre of the policy discussions in the aftermath of the global financial crisis, and is back on the policy agenda on the back of perceptions that market liquidity has been impaired due to the diminished risk-taking capacity of dealer banks. The lesson from the global financial crisis was that resilient market liquidity differs from fickle, fair weather liquidity. Financial markets will always be subject to shocks, but more resilient market liquidity built on broader foundations of dealer capital will mitigate the endogenous, second-round effects that amplify financial shocks.