Day 2: Liquidity Risk Through History - From Bank Runs to Basel III

To truly understand liquidity risk management today, we have to look at where it came from. In this session, we step back through more than 150 years of banking history to explore how liquidity failures, bank runs, and financial crises have shaped the rules, frameworks, and behaviours that define modern banking.

This lesson traces the evolution of liquidity risk from the classic bank runs of the 19th century to the most recent collapses of Silicon Valley Bank and Credit Suisse. We examine how fear, confidence, and access to cash have repeatedly determined whether banks survive or fail, even when they appear solvent and well capitalised.

You will learn how early crises like the 1866 collapse of Overend, Gurney and Company led to the development of the lender of last resort concept, formalised by Walter Bagehot and still central to central bank doctrine today. We explore the Panic of 1907 and how it exposed the dangers of a system without a central bank, ultimately leading to the creation of the Federal Reserve. We then examine the Great Depression and the introduction of deposit insurance as a critical defence against retail bank runs.

The session moves through the rise of wholesale funding, the lessons from Continental Illinois, and the growing vulnerability created by short term market funding. We then deep dive into the Global Financial Crisis of 2007 to 2008, showing how liquidity risk moved from a secondary concern to the centre of global regulation following the collapse of Northern Rock, Bear Stearns, and Lehman Brothers.

You will understand why Basel III introduced the Liquidity Coverage Ratio and Net Stable Funding Ratio, how European and UK regulators embedded liquidity into supervisory frameworks through ILAAP and SREP, and how these reforms reshaped Treasury, Risk, and governance structures inside banks.

We also explore why the COVID 19 crisis tested liquidity frameworks at an unprecedented scale and how coordinated central bank action validated post 2008 reforms. Finally, we examine the lessons from 2023, including the rapid collapse of Silicon Valley Bank and the loss of confidence in Credit Suisse, reinforcing the reality that liquidity crises still happen fast and with little warning.

By the end of this session, you will understand why liquidity risk is never static, why complacency is dangerous, and why every crisis leaves a permanent imprint on regulation and bank behaviour. This historical foundation explains not just how liquidity risk works, but why modern rules exist and why preparing for the unexpected is at the heart of effective liquidity management.

This session forms a critical foundation for the rest of the Liquidity Management course, setting the context for upcoming sessions on types of liquidity risk, stress testing, funding strategies, and real time risk monitoring.

Keywords
liquidity risk history, liquidity management, bank runs, banking crises, northern rock, silicon valley bank, credit suisse, global financial crisis, basel iii, lcr, nsfr, ilaap, treasury, risk management, banking regulation, central banking, lender of last resort, finance course, industry portal

Видео Day 2: Liquidity Risk Through History - From Bank Runs to Basel III канала The Industry Portal