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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
Money market products
Defining liquidity risk
The liquidity regime
Measures & responsibilities
The main drivers of liquidity risk
Stress testing
Contingency funding plan
Funding
Funds Transfer Pricing
23rd January 2010
In a world where regulators are focusing on liquidity and capital it's easy to overlook market risk. In many firms this means interest rate exposure. In the UK with Bank Rate at an all time low it's tempting to think that hedging fixed rate assets is just a waste of money. After all why pay 3.25% on a 5 year swap when 3 month Libor is only 51 basis points? Surely matching the interest basis on assets and liabilities ends up costing you 274 bps doesn't it?
1st November 2009
A contractual cash flow report for a bank will show you that liabilities have shorter maturities than assets. That's because running liquidity risk generally makes money. But it has risks. Lack of confidence can lead to a real shortage of cash. That's why banks hold liquidity buffers. But measuring liquidity risk goes beyond what is contracted. It needs to assess the behaviour of markets and individuals. It's why stress testing is in vogue. Stress testing can't predict the future but it can give you an estimate for your liquidity buffer. It's likely to be a lot bigger than previously and it's going to cost your firm more, that's unless you can pass the cost on through transfer pricing.