DESIGNING A FORWARD LOOKING LIQUIDITY FRAMEWORK TO WITHSTAND GLOBAL SHOCKS
Liquidity risk has fundamentally changed in recent years. It has not only increased; it has accelerated. Not long ago, liquidity could be managed as a steady discipline in which ratios were kept healthy, concentrations monitored, buffers maintained and institutions assumed they would have time to react to deteriorating conditions. That assumption is far more difficult to make today. Liquidity stress can now arrive within hours, driven by shifts in confidence, digital access, collateral calls, settlement pressure and sudden losses of market depth.
A concise phrase captures this new reality: “Liquidity risk now moves at the speed of confidence, and frameworks must match that speed.” When stress moves faster than governance and decision-making cycles, even strong ratios may leave institutions exposed.
What rewired liquidity risk
The past five years have effectively served as a global stress laboratory, with each episode revealing a different dimension of modern liquidity behaviour.
In 2020, the dash for cash demonstrated that liquidity is not an inherent property of an asset class. Instruments perceived as liquid under normal conditions became slow or costly to monetise when the market simultaneously needed cash. Central bank intervention became essential not because buffer logic had changed but because market functioning degraded rapidly under system-wide strain.
In 2022, the UK gilt and liability driven investment episode showed that modern liquidity shocks can be collateral driven rather than driven by classic deposit runs. Extreme volatility produced large margin calls, forcing asset sales that worsened conditions, triggered further calls and created a nonlinear liquidity spiral.
Apr-Jun 2026 Issue
Habib Bank AG