TY - JOUR T1 - Liquidity Risk JF - Trading SP - 52 LP - 63 VL - 2010 IS - 1 AU - Michael J Howell Y1 - 2010/03/20 UR - http://guides.pm-research.com/content/2010/1/52.abstract N2 - This article distinguishes between market liquidity and instrument liquidity. Important macro-factors (market liquidity) determine liquidity conditions in micro-markets (instrument liquidity). Capitalism is essentially a financing system, or more correctly a refinancing system. The refinancing process is largely controlled at the macro level by central banks via their influence on the wholesale money markets. Financial liquidity tends to move in a four-to-five-year global cycle. Periods of tight liquidity trigger financial crises like that of 2007-2008. The modern-day banking crisis no longer involves queues of retail depositors scrambling to remove their savings whenever their bank lacks reserves. Rather it is caused by asset-liability “mismatch” and an inability to refinance short-term liabilities in the wholesale markets. ER -