Dear SAP Community members,
A very important issue, partially responsible of the Financial and Economical unrest we’ve suffered on the last 2 years is the Maturity Mismatch.
The Maturity Mismatch is defined as the tendency of a business to mismatch its balance sheet by possessing more short-term liabilities than short-term assets and having more assets than liabilities for medium- and long-term obligations.
As we saw in other posts, the way that a company organizes the maturity of its assets and liabilities determines the liquidity of its position.
When we talked about the financial crisis and the Lehman Brothers collapse, there’s some tendency to consider the securitization process of mortgage loans (mainly subprime) by the Collateralized Debt Obligations, responsible of the disaster.
I agree with the common view that there was lack of transparency on the trade of those products, but when we look to the issue a little bit deeper, we show other causes with bigger impact on the problem.
The securitization process was supposed to clean the balances of the banks holding subprime mortgages and getting new liquidity. But in fact, what happened is that on the summer of 2008, at the time the oil achieved a price of $112 a barrel, the Financial System was moving to an scenario of huge liquidity tensions. Liquidity tensions that became perfectly visible in September of the same year.
Another visible consequence of the liquidity tensions was the collapse of the commodities prices on the fall/winter of 2008. The disaster of the commodity markets on that period is another interesting example of liquidity risk that we can discuss someday.
But let’s return to the maturity mismatch issue. When the investment banks securitized the mortgage loans in their balance (investments of very long maturities), they didn’t issue bonds and obligations of long maturities, but financial instruments of very short maturities. That’s a very clear example of the Maturity Mismatch issue. That triggered a huge liquidity risk (as the balances of the banks were full of illiquid assets).
That "perfect storm" took the shape of rollover risk in September 2008 when some of the main USA Banks were unable to refinance their short term obligations and the financial nightmare started.
What can SAP Bank Analyzer offer for managing efficiently the liquidity risk?
We´ll talk about in another week.
Looking forward to read your comments.
Kindest Regards.
Ferran.
A very important issue, partially responsible of the Financial and Economical unrest we’ve suffered on the last 2 years is the Maturity Mismatch.
The Maturity Mismatch is defined as the tendency of a business to mismatch its balance sheet by possessing more short-term liabilities than short-term assets and having more assets than liabilities for medium- and long-term obligations.
As we saw in other posts, the way that a company organizes the maturity of its assets and liabilities determines the liquidity of its position.
When we talked about the financial crisis and the Lehman Brothers collapse, there’s some tendency to consider the securitization process of mortgage loans (mainly subprime) by the Collateralized Debt Obligations, responsible of the disaster.
I agree with the common view that there was lack of transparency on the trade of those products, but when we look to the issue a little bit deeper, we show other causes with bigger impact on the problem.
The securitization process was supposed to clean the balances of the banks holding subprime mortgages and getting new liquidity. But in fact, what happened is that on the summer of 2008, at the time the oil achieved a price of $112 a barrel, the Financial System was moving to an scenario of huge liquidity tensions. Liquidity tensions that became perfectly visible in September of the same year.
Another visible consequence of the liquidity tensions was the collapse of the commodities prices on the fall/winter of 2008. The disaster of the commodity markets on that period is another interesting example of liquidity risk that we can discuss someday.
But let’s return to the maturity mismatch issue. When the investment banks securitized the mortgage loans in their balance (investments of very long maturities), they didn’t issue bonds and obligations of long maturities, but financial instruments of very short maturities. That’s a very clear example of the Maturity Mismatch issue. That triggered a huge liquidity risk (as the balances of the banks were full of illiquid assets).
That "perfect storm" took the shape of rollover risk in September 2008 when some of the main USA Banks were unable to refinance their short term obligations and the financial nightmare started.
What can SAP Bank Analyzer offer for managing efficiently the liquidity risk?
We´ll talk about in another week.
Looking forward to read your comments.
Kindest Regards.
Ferran.
No comments:
Post a Comment