Sample Essay

The liquidity risk is the risk of being unable to pay liabilities when they become due or when the bank needs to borrow from new sources to settle previous commitments. There is a liquidity management mechanism already in place in UBS but the severe economic conditions of 2008 affected the liquidity of the bank quite heavily. UBS might be at high risk if it has to borrow to fund its ongoing operations including current and future commitments. UBS knows that liquidity and funding are not same but they are linked to each other quite closely.

The financial crisis that started in 2007 from the United States had a large affect on the liquidity of most banks of Europe and Asia. UBS also faced liquidity crunch as short term and long term funds were unavailable like they were available before and a majority of assets were not being taken as collateral. Governments of different countries are still trying hard to alleviate the liquidity crisis facing these banks by injecting liquidity, buying majority shares and proposing bailout packages. The Swiss Government also proposed a bailout plan by injecting liquidity of CHF 6 billion into UBS which is the largest bank of Switzerland[1]. This move allowed UBS to get rid of the risky assets which could affect the future operations and liquidity of the bank.

[1] Kirkup, J., and B. Waterfield. Financial crisis: Switzerland Injects ‘Bail-out ‘ Billions into Banks. October 16, 2008. http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3210310/Financial-crisis-Switzerland-injects-bail-out–billions-into-banks.html

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