The great liquidity freeze: What does it mean for international banking?

Arbeitspapier

In mid-September 2008, following the bankruptcy of Lehman Brothers, international interbank markets froze and interbank lending beyond very short maturities virtually evaporated. Despite massive central bank support operations and purchases of key assets, many financial markets remained impaired for a long time. Why was this funding crisis so much worse than other past major bank failures and why has it proved so hard to cure? This paper suggests that much of that answer lies in the balance sheets of international banks and their customers. It outlines the basic building blocks of liquidity management for a bank that operates in many currencies and then discusses how the massive development of foreign exchange (forex) and interest rate derivatives markets transformed banks' strategies in this area. It explains how the pervasive interconnectedness between major banks and markets magnified contagion effects. Finally, the paper provides some recommendations for how strategic borrowing choices by international banks could make them more stable and how regulators could assist in this process.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ADBI Working Paper ; No. 291

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Financial Crises ; International Financial Markets ; General Financial Markets: Government Policy and Regulation ; Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies ; Financial Institutions and Services: Government Policy and Regulation
• Subject: Geldmarkt ; Internationale Bank ; Risikomanagement ; Bankenliquidität ; Bankrisiko ; Ansteckungseffekt ; Welt

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Domanski, Dietrich ; Turner, Philip
• Event: Veröffentlichung
• (who): Asian Development Bank Institute (ADBI)
• (where): Tokyo
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/53627
• Last update: 10.03.2025, 11:42 AM CET