The episode has demonstrated that there was insufficient understanding of how complex structured products work, the nature of the risks to which the investors were actually exposed, and, in the case of risk transfer through securitisation, etc., where the risk ultimately resided, and indeed, whether any risk has really been transferred from the originators.
Liquidity risk There had been an insufficient recognition on the part of supervisors and banks of the close link between market liquidity (ability to rapidly sell assets without impacting prices) and an individual bank’s funding liquidity (ability to raise funds from the market).