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Liquidity Risk Course

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Liquidity risk workshop

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Borrowing short and lending long is a traditional source of income for firms. But when depositors withdraw funds it can lead to bank failure.There are also a surprising number of things that create liquidity risk. It has forced the hand of the authorities. It’s why you need to assess how much liquidity you hold particularly under stressed conditions. This is then translated into a portfolio of high quality liquidity that meets the risk appetite of the Board. In this way your business should be able to survive liquidity shocks within a particular time horizon. You will also need to assess whether your funding profile is suitable for the business you undertake.

Furthermore understanding how it all fits together is a real challenge. Do you find it tricky? Are you in finance, operations, audit, risk, dealing or management?

Do you need to know more? This liquidity risk course gives you the opportunity to find answers to questions like:

What is liquidity arbitrage? What’s the real definition of liquidity risk? Why do contractual cash flows need improvement? What are the main sources of liquidity risk? How does the regulatory process work? What’s liquid and what’s not? What's in the high quality buffer? Why is behaviour so important? What qualitative and quantitative measures are used? What's the liquidity coverage ratio about? How do structural measures like the net stable funding ratio aim to reduce risk? What’s stress testing all about? How severe should it be? How much does the liquidity buffer cost you? What’s the real reason for a CFP? How do weak controls and poor management increase your costs? Why transfer price? How will this reshape the market?

This liquidity risk course is properly structured, takes a day and there are case studies. It’s not complicated and you don’t have to be an expert. Interested?


The liquidity arbitrage

  • How asset and liability mismatches make money.
  • How and why firms exploited this “liquidity arbitrage”
  • What it’s worth to your business

Money market products

  • Loans and deposits
  • Yield curves and rates
  • Certificates of deposit
  • Commercial paper
  • Floating rate notes
  • Treasury bills
  • Central bank reserve accounts
  • Repurchase agreements

 Defining liquidity risk

  • The whole balance sheet
  • Contractual cash flows
  • What liquidity gap reporting tells you
  • The importance of granularity
  • A dealers tool
  • What’s missing

The liquidity regime

  • Internal Liquidity Adequacy Assessment Process (ILAAP)
  • Liquidity Supervisory Review & Evaluation Process (L-SREP)
  • Individual liquidity guidance (ILG)

Measures & responsibilities

  • Board responsibilities
  • Qualitative measures
  • Quantitative measures
  • Capital Requirement Directive IV (CRD IV)
  • Survival days
  • Buffer/High Quality Liquid Assets (HQLA)
  • Liquidity Coverage Ratio (LCR)
  • Turnover, sale and repo


The main drivers of liquidity risk

  • The run-off of retail funding
  • The reduction of secured and unsecured wholesale funding
  • The correlation and concentration of funding
  • Additional contingent off-balance sheet exposures
  • Funding tenors
  • The impact of a deterioration in the firm’s credit rating
  • Foreign exchange convertibility and access to foreign exchange markets
  • The ability to transfer liquidity across entities, sectors and countries
  • Estimates of future balance sheet growth
  • The impact on a firm’s reputation or franchise
  • Marketable asset risk
  • Non-marketable asset risk
  • Internalisation risk
  • Intraday liquidity risk

 Stress testing

  • Changes to stress testing
  • Severity
  • Scenarios

 Contingency funding plan

  • Early warning indicators
  • Limits
  • Reverse stress testing


  • Funding plans
  • Net Stable Funding ratio (NSFR)
  • Objective & calculation
  • Risk reporting

Funds Transfer Pricing

  • The regulatory view
  • The cost of money
  • Pricing liquidity risk into products

 End of workshop & review

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