Furthermore, regulatory bodies have given very little navigational assistance until recently, and yet set ever stricter speed limits.
The main reason so many banks are shaky and don't keep their eyes fully open when it comes to liquidity management is the truism that says you can only manage efficiently what you are able to measure. But on the whole, banks are not equipped to disconnect the liquidity and interest rates of an individual position and manage them separately. The internal pricing and allocation of liquidity is therefore also blurred – and there are only limited opportunities for increasing the potential profit from liquidity maturity transformation while also complying with regulatory requirements.
Furthermore, liquidity risk management has not evolved at the same pace as the other risk types included in the calculation of counterbalancing capacity. More often than not, risk managers make do with keeping track of the net liquidity available in various time buckets and systematically disregard the close ties with strategic planning – sometimes with serious consequences. When a bank only has the risk of insolvency under control, it can misjudge the serious effect that cash outflows can have on the earnings position – not to mention downgrades, reputation damage, and loss of market share.