Russia/ltcm and Market Liquidity Risk
نویسندگان
چکیده
As recounted by Stefan Walter in the last issue of "The Financial Regulator" (Walter 1999), whereas the Russia/LTCM crisis of 1998 raised a number of significant regulatory concerns (see also Basel Committee 1999), the real danger arose from the market liquidity failure in what are traditionally the most liquid markets in the world, namely those in the US. This article seeks to complement that earlier analysis by focusing on the phenomenon of market liquidity risk. Accordingly, it illustrates the way liquidity failure arose during the crisis, it outlines an economic approach to understanding the genesis of such events, and sets out the main regulatory concerns that such market liquidity failures can occasion. It is important before commencing to note that abrupt declines in debt securities market liquidity are not unusual. As discussed in Davis (1994), amongst parallel episodes are the collapse of the FRN market in 1987, the junk bond crisis of 1990, the collapse of the Swedish commercial paper market also in 1990 and the difficulties of the ECU bond market in 1992. Admittedly, most of these comparable patterns in the past affected rather minor and segmented markets, with a concentrated structure of market makers, investors and/or issuers. The most similar episode was perhaps that in the US CP market at the time of the Penn Central bankruptcy in 1970, which was considered of sufficiently systemic dimensions to warrant a policy response. Nevertheless, the growing importance of capital market financing suggests that the regulatory implications of market liquidity failure must be taken very seriously. It may be added that the rapid securitisation of the eurozone in the wake of EMU (Davis 1999b) makes the issue of considerable relevance there.
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تاریخ انتشار 2001