Multi-Agent Decision Making for Liquidity Risk Management under Market Stress
Keywords:
multi-agent systems; liquidity risk; market stress; financial stability; governance; robustness; fairness; socio-technical infrastructureAbstract
Liquidity risk management under market stress is increasingly a problem of distributed, adaptive, and interdependent decision making rather than a narrow treasury or balance-sheet function. During periods of market dislocation, liquidity evaporates through feedback loops among funding markets, dealer inventories, collateral calls, algorithmic execution, and regulatory constraints. This paper examines how multi-agent decision making can be designed, governed, and deployed to improve liquidity risk management under such conditions. It argues that the central challenge is not simply predictive accuracy but the alignment of heterogeneous agents, incentive structures, communication protocols, and human oversight within a socio-technical infrastructure. The paper develops a system-level framework that distinguishes perception, coordination, execution, and governance layers. It analyzes structural trade-offs involving centralization and decentralization, speed and accountability, resilience and efficiency, and fairness and systemic stability. It further considers governance mechanisms, regulatory reporting, auditability, stress testing, operational resilience, and sustainability. Particular attention is given to the risks of correlated agent behavior, liquidity mirages, procyclical automation, and opaque model interactions. The paper concludes that multi-agent liquidity risk management requires hybrid architectures that combine adaptive machine intelligence with circuit breakers, human judgment, regulatory transparency, and cross-institutional coordination. Without such safeguards, multi-agent systems may amplify stress even as they improve local decision quality. The analysis has implications for financial institutions, regulators, infrastructure providers, and policy makers seeking to build robust, fair, and sustainable liquidity risk systems.
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