Swissquote Conference on the Hot Topic of Liquidity and Systemic Risk

© 2012 EPFL

© 2012 EPFL

On the 8th and 9th of November 2012, the EPFL hosted the third of the annual series of Swissquote Conferences. The focus this time was on liquidity and systemic risk, which have become the dominant terms in the discussion of oversight of financial markets. During these two days of conference, practitioners and academics shared their knowledge and visions on this hot topic.

The recent financial crisis sparked an overwhelming activity of academics and policy makers, creating a vast diversity of models and measures of liquidity and systemic risk. All the more surprising is that a clear and unanimous definition of liquidity or systemic risk seems yet outstanding. The conference contributed to the discussion about whether liquidity and systemic risk should be explicit targets of measurements or be left vague and at the discretion of policymakers.

The conference featured nine presentations by leading experts and scholars in the area of liquidity and systemic risk. This included a keynote talk by Martin Hellwig, Director of the Max Planck Institute for Research on Collective Goods in Bonn, on the question why systemic risk in banking and finance has increased over the last years. A panel discussion on future challenges of liquidity and systemic risk featuring Martin Hellwig, Tobias Adrian (Federal Reserve Bank of New York), Jean-Charles Rochet (University of Zurich), and Lasse H. Pedersen (Copenhagen Business School) got lively feedback from the audience. Asked for the cornerstones of a new regulatory framework addressing liquidity and systemic risk the participants replied by: simplicity, higher capital and liquidity requirements for banks in conjunction with a general equilibrium framework (demystifying cost of capital, growth impact, etc.), data transparency, and the political means for bank resolution addressing size and complexity.

The conference was jointly sponsored by the Swiss Finance Institute, the National Centre of Competence in Research (NCCR) in the field of "Financial Valuation and Risk Management" (FINRISK), and the Swissquote Chair in Quantitative Finance at EPFL. L'Agefi has devoted two articles to this conference.