Ricerc@Sapienza

The 2007-2009 financial crush that caused not only the collapse of the financial system but also a huge negative effect to the entire economy has emphasized shortcomings liquidity management at financial institutions. The last crisis showed us that the consequences of poor liquidity risk management could affect not only one financial institution but also the entire financial system and going beyond to the global economy. From 2010, The Basel Committee on Banking Supervision introduced a new package of proposals named Basel III, to strengthen management of liquidity risk.

A decade later, many studies have investigated on what happened in the last financial crisis and a variety of reports raise question whether a new one could be on the horizon. As we pass the ten-year anniversary of last global financial crisis, one question about the financial system comes up: Is the history repeating again? There has been much speculation recently in the press about the next possible financial crisis and many economists around the world do not have good news for us. Analysts at J.P. Morgan Chase recently made an announcement of a new predictive model that pencils in the next crisis to hit in 2020. They have warned a potential liquidity risk that may emerge due to a decline in stocks which could cause the so called ''the Great Liquidity Crisis''.

As the alarm bells ringing, we aim to empirically investigate liquidity risk and the credit risk as the two major sources of bank default risk by considering the impact of the new requirements under Basel III on liquidity characteristics. We will use a sample of banks in Italy during the post-crisis period as well as a sample from other European banks and analyze the effects of these two risk sources on the bank institutional-level. This will provide us a comparison between Italian banks and other EU countries under implementation of Basel III characteristics and suggest possible strategies and ways to mitigate future crisis.