Liquidity risk was cited as one of the main drivers of the 2008 credit crisis. Since the financial crisis, regulators have identified significant pitfalls in how financial institutions managed risk. As a result, new regulations have been introduced which require Banks to limit leverage, maintain increased levels of liquidity through the Liquidity Coverage Ratio and Net Stable Funding Ratio.
Financial crisis consequences forced players in the financial Services industry continually to address the formulation, implementation, review and subsequent revision (if needed) of liquidity management strategies to ensure that sensitivity to interest rate changes and currency fluctuations are within acceptable risk tolerance levels.
Within this course the participants will be able to comprehend how the Yield, the Liquidity as a concept and the Risk related to that interrelate, comply with reporting requirements of the liquidity from different business lines, learn how to risk adjust these cash flows and how to optimise the capital structure within the organisation but in a regulatory compliant manner.
This course will give an overview of the challenges of managing liquidity risk as well as recommendations to address this important risk. All these topics will be covered from practical and industry relevant aspects.
5 KEY TAKEAWAYS
- Review liquidity management lessons learned from the crisis
- Assess liquidity risk management, asset and liability management and funding strategy in a structured manner
- Forecast, control and stress-test liquidity sources and uses (on and off balance sheet)
- Build a contingency funding plan to address stress cash outflows
- Evaluate changing regulations and supervisory guidance on the management of bank liquidity
- Understand the complex structure of the Basel II and Basel III Accords, as well as the Liquidity Coverage Ratio and Net Stable Funding Ratio.
- Review the definitions of Liquidity Risk including the alternative methodologies which can be used to calculate them.
- Explore how liquidity risk is captured by the Liquidity Coverage Ratio and Net Stable Funding Ratio.
WHO SHOULD ATTEND?
All Bank branch managers, supervisors, and employees working in treasury, back office, middle office, audit, retail, credit, corporate risk management and compliance departments.
LIQUIDITY RISK MANAGEMENT SPECIALIST CERTIFICATION
The International Academy of Business and Financial Management™ is one of the world’s fastest growing professional associations with more than 200,000 members, associates and affiliates in 145 countries. IABFM™ hosts and organizes certification training worldwide and offers exclusive board designations to candidates who meet the highest professional standards and assessment criteria.
The IABFM is acredited by the American National Standards Institute (ANSI), which is the International Standards setting authority.
- Length 5 days
- Level Intermediate Training
- Industry Risk Management
- Prerequisites Course attendees are expected to have working knowledge of Asset Liability Management and ALM as a prerequisite for this program.
- Association IABFM - International Academy of Business and Financial Management
- Language English
- This program is worth 35 NASBA CPE credits
The goal of this section is to lay the foundation for the concept of liquidity risk and explore how it affects banks business models.
»» Define liquidity risk – market and funding risk
»» Understand the key drivers: asset liquidity and funding needs, funding strategy
»» Understand the role that perception plays
»» Evaluate the circumstances of the 2008 crisis
»» Review Basel Principle 1- risk management framework within the overall risk management of a bank
»» Understand the inter-relationship between liquidity, credit, market, operational, legal and reputation risks
»» Supervisory role: expectations and remedial actions
»» Case study
»» Review Basel Principle 2 and its functions in different business models, e.g. retail and wholesale banks, multi-nationals and investment banks
»» Review Basel Principle 3 – Strategies, policies and practices
»» Review Basel Principle 4 – Liquidity costs, benefits and risks
»» Understand early warning signals of unacceptable risk tolerance
»» Depositor Insurance schemes and their role in liquidity
»» Examine banks which failed due largely to weak liquidity management
»» Case Study
Liquidity and Funding Needs
»» Define Asset and liability management goals
»» Define minimum risk assets and liquid assets
»» Define key metrics to measure asset liquidity and funding needs
»» Forecast funding needs
»» Fair valued asset pricing (SFAS 157 & IFRS 7)
»» Collateral assessment: haircuts / margin, available collateral for access to funding, client balances, Central Bank eligibility criteria
»» Early warning signals
»» Understand the interaction between liquidity and other risks
»» Understanding systemic risk and effect on market and funding liquidity
»» Stress-test scenarios
»» Trigger events
»» Case Study
ALM & Funding Strategy
»» Funding appropriate for different risk profiles
»» Issues in diversity and tenor matching of funding sources
»» Gap management across tenor and currency buckets
»» Capital techniques to fund illiquid assets and stress outflows
»» Key metrics for measuring funding strategy and refinancing risk
»» Forecasting funding cash-flows over different time horizons: intraday, day to day, under and over a year
»» Contingency funding plan and stress-testing
»» Case Study
Key Topics in Controls & Regulations
»» Mismatch limits across entities, lines of businesses, currencies and jurisdictions
»» Cumulative contractual cash-flow mismatch limits, based on risk tolerance, balance sheet size, depth of market, funding structure
»» Operational management of intraday payments and settlements: due diligence
»» Relationship between prudential measures of liquidity, capital adequacy and other measures
»» Comparison across regulatory regimes
»» Payments and settlement systems
»» Role of deposit insurance in a liquidity crisis
»» Regulatory responses to liquidity problems: guarantees, insurance, recapitalisation, bad banks
»» Due diligence summary
»» Basel III developments
»» Case Study