Strategies Aimed at Mitigating Liquidity Risk

Student: Margaret McCabe*
Mentor: Lucjan Orlowski
Major: Finance 

After the 2007-2008 financial crisis there has been many changes in regulatory policy in order to prevent a future crisis. These policy changes came from an intensive review process on what caused the crisis. As determined by this review process, the unanticipated illiquidity that locked up the entire financial market and sent it into a downward spiral is considered a large cause of the crisis. This paper attempts to outline, analyze and evaluate three major strategies financial institution can employ in order to prevent future illiquidity and to adequately prepare for any inevitable illiquidity. Each strategy prepares the financial institution for the worst, enabling it to minimize any potential individual damage as well as damage to the total financial market.

*Honors Senior