Course Objectives

Liquidity risk has been one of the main drivers of the current credit crisis. This workshop will give an overview of the challenges and recommendations for liquidity risk management going forward.

Participants will be equipped to:

• Review liquidity management lessons learned from the current crisis
• Use a structured approach to assess liquidity risk management, asset and liability management and funding strategy
• Understand how banks forecast, control and stress-test their liquidity sources and uses (on and off balance sheet) and build a contingency funding plan to address stress cash outflows
• Identify banks with weak liquidity and contingency planning within the context of the bank’s role within the financial system
• Anticipate changing regulations and supervisory guidance on the management of bank liquidity.

Target Audience

Regulators, analysts, risk and banking professionals who need to better understand the liquidity risk management challenges and strategy within a bank. The course is targeted at an intermediate level and assumes a basic understanding of banking products and services. Related workshops include: Risk Management in Banks & the Capital Implications. which provides a broader overview of all risk management areas.

Content

ANALYTIC OVERVIEW

The aim of this section is to introduce the concept of liquidity risk and explore how it affects banks business models.

Case study:

Reviewing the challenges facing bank management and financial regulators in monitoring and controlling liquidity risk in their own institutions and on a systemic basis.

GOVERNANCE

The governance section aims to identify the differing sensitivities and tolerances to liquidity risk for differing bank business models, and how this affects the approach to liquidity risk management taken by individual institutions.

• Liquidity risk tolerance (Basel Principle 2) given different business models, e.g. retail and wholesale banks, multi-nationals and investment banks
• Strategies, policies and practices (Basel Principle 3)
• Liquidity costs, benefits and risks (Basel Principle 4)
• Early warning signals of unacceptable risk tolerance
• Depositor Insurance schemes; underpinning liquidity in the retail market
• Banks which failed due primarily to weak liquidity management
• Exercises. illustration of the liquidity risks associated with excessive leverage in an opco / holdco structure
• Costs associated with failure to adequately price for liquidity.

ASSET LIQUIDITY AND FUNDING NEEDS

The aim of this section is to develop quantitative and qualitative techniques for assessing the liquidity risk of financial institutions.