Outcomes
By the end of this training course, trainees will be able to:
- Differentiate between sources of liquidity risk and describe specific challenges faced by different types of financial institutions in managing liquidity risk.
- Identify liquidity funding risk, funding sources, and lessons learned from real cases: Northern Rock and Lehmans.
- Calculate a bank’s liquidity needs through three methods (sources and uses of funds, structure of funds, and liquidity indicators).
- Interpret the term structure of expected cash flows and cumulative cash flows.
- Evaluate Basel III liquidity risk ratios.
- Identify and explain the uses and sources of intraday liquidity.
- Discuss liquidity stress test design issues such as scope, scenario development, assumptions, outputs and governance.
- Identify the importance of maintaining a cushion of unencumbered, high quality liquid assets.
- Identify the principles of collateral management.
- Evaluate the key design considerations of a sound contingency funding plan.
- Identify the importance of establishing a liquidity risk tolerance.
- Describe the necessity of allocating liquidity costs, benefits and risks to all significant business activities.
Target Group
- Professionals working in:
- Treasury .
- Risk .
- Finance .
- Capital management.
- Regulatory compliance.
- Audit.
Contents
- Introduction to liquidity risk :
- The concept of liquidity in banks.
- Definition: funding and liquidity risks .
- Liquidity risk drivers .
- Liquidity risk management framework within the overall risk management of a bank.
- Inter-relationship between liquidity, credit, market, operational, legal and reputation risks.
- The financial crisis: lessons to be learnt.
- Liquidity risk measurement :
- Projecting cash flows arising from assets, liabilities and off-balance sheet items.
- Short term liquidity risk metrics – survival horizon, short term liquidity ratio.
- Concentration metrics: funding, counterparty and currency.
- Basel III metrics:
- Liquidity coverage ratio.
- Net stable funding ratio.
- Other monitoring tools.
- Liquidity stress testing.
- Practical exercises .
- Management of liquidity risk :
- Funding strategy .
- Liquidity cushion and counterbalancing capacity .
- Management of intraday liquidity positions.
- Management of collateral positions.
- Contingency funding plan (CFP):
- Governance.
- Early warning indicators (EWIS).
- Management actions.
- Governance of liquidity risk management :
- Liquidity risk tolerance.
- Strategy, policies and procedures to manage liquidity risk in accordance with the risk tolerance.
- Liquidity funds transfer pricing