https://wiki.treasurers.org/w/index.php?action=history&feed=atom&title=Liquidity_transformation 2026-08-27T16:50:49Z Revision history for this page on the wiki MediaWiki 1.40.0 https://wiki.treasurers.org/w/index.php?title=Liquidity_transformation&diff=54506&oldid=prev 2024-02-04T23:38:39Z

<p>Create page - source - ESRB - https://www.esrb.europa.eu/pub/pdf/wp/esrbwp23.en.pdf</p> <p><b>New page</b></p><div>Liquidity transformation is the creation of relatively more liquid assets from relatively less liquid assets.<br /> <br /> One of the roles undertaken by banks is to provide investors with highly liquid deposits - including ones that can be withdrawn on demand - while using the deposited funds to finance illiquid longer-term loans.<br /> <br /> <br /> :&lt;span style=&quot;color:#4B0082&quot;&gt;'''''Does traditional asset management lead to fire sales and financial instability?'''''&lt;/span&gt;<br /> <br /> :&quot;Through allowing investors to withdraw capital at short notice, traditional asset managers provide liquidity services that are similar to banks.<br /> <br /> :For example, though they may invest in illiquid assets such as corporate bonds, bank loans, and emerging market stocks, open-end mutual funds have liquid liabilities. <br /> <br /> :Specifically, mutual funds allow investors to redeem any number of shares at the fund’s end-of-day net asset value (NAV), effectively pooling liquidation costs across investors. <br /> <br /> <br /> :In contrast, investors who directly hold the underlying investments bear their own liquidation costs when selling those assets.<br /> <br /> :Can liquidity transformation by asset managers cause financial stability problems?<br /> <br /> <br /> :... A key concern on one side of the debate is that liquidity transformation increases the scope for fire sales.<br /> <br /> :Redemptions from an open-end fund can force sales of illiquid assets, depressing asset prices and thereby stimulating further redemptions and fire sales.&quot;<br /> <br /> :''Liquidity transformation in asset management: Evidence from the cash holdings of mutual funds - European Systemic Risk Board (ESRB) - 2016.''<br /> <br /> <br /> ==See also==<br /> *[[Asset backed securities]] (ABS)<br /> *[[Asset management]]<br /> *[[Corporate bond]]<br /> *[[Collateral swap]]<br /> *[[European Systemic Risk Board]] (ESRB)<br /> *[[Financial stability]]<br /> *[[Fire sale]]<br /> *[[Liquidity]]<br /> *[[Liquidity insurance]]<br /> *[[Liquidity swap]]<br /> *[[Mutual fund]]<br /> *[[Net asset value]]<br /> *[[Redemption]]<br /> *[[Repo]]<br /> *[[Securities Financing Transactions Regulation]]<br /> *[[Spillover risk]]<br /> *[[Sterling Monetary Framework]]<br /> *[[Stress]]<br /> <br /> <br /> ==Other resource==<br /> *[https://www.esrb.europa.eu/pub/pdf/wp/esrbwp23.en.pdf Liquidity transformation in asset management: Evidence from the cash holdings of mutual funds - European Systemic Risk Board (ESRB) - 2016]<br /> <br /> [[Category:Accounting,_tax_and_regulation]]<br /> [[Category:Identify_and_assess_risks]]<br /> [[Category:Risk_frameworks]]<br /> [[Category:The_business_context]]<br /> <br /> [[Category:Accounting,_tax_and_regulation]]<br /> [[Category:Identify_and_assess_risks]]<br /> [[Category:Risk_frameworks]]<br /> [[Category:The_business_context]]</div>

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