Liquidity Risk Management

Day One

09.00 - 09.15 Welcome and Introduction

09.15 - 12.00 General Introduction to Liquidity Risk Management

• Cash Flow Risk vs. Market Liquidity Risk
• Why Liquidity Risk Management has Become More Important
• The Integration of Liquidity Risk with Market and Credit Risk
• Case Study: The “Subprime” Crisis and the Run on Northern Rock

Assessing Bank Liquidity Risk

• An ALM Framework for Assessing Liquidity Risk
• Factors that Affect Bank Liquidity
  • Financial Market Access
  • Balance Sheet Structure and Earnings
• Balance Sheet Analysis
  • Core vs. Non-Core Deposits
  • Available-for-Sale vs. Held-to-Securities
• Sources of Cash Flow Uncertainty
• Contingent Cash Flows (MBS, Derivatives)
• Assessing Liquidity Risk Using GAP Analysis
• Stochastic Liquidity Modelling (PC-simulations)
  • Modelling Static and Uncertain Cash Flows of Maturing/Non-Maturing
    Deposits, Assets with Pre-Payment Risk, Derivatives,
    Margin Payments, “Liquidity at Risk” etc.
• Practical Case Studies and Exercises

12.00 - 13.00 Lunch

13.00 - 16.30 Assessing Market Liquidity Risk

• The Relationship between Market and Liquidity Risk
• Measuring Market Liquidity Risk of Treasuries
  • Bid/ask Spread
  • Trading Volume, Size and Frequency
  • Price Impact
  • Price Volatility
  • Yield Spread
• Measuring Market Liquidity Risk of Corporate Bonds
  • How to Separate Liquidity Spread from Credit Spread
• Liquidity Risk of Emerging Market Investments
• Measuring Liquidity in Futures and Swaps Markets
  • Open Interest and Volume
  • Liquidity and Swap Spreads
• Liquidity Shocks and Liquidity “Black Holes”
• Practical Case Studies:
  • LTCM and other Liquidity Crises
• Exercises

Day Two

09.00 - 09.15 Brief recap

09.15 - 12.00 Managing Liquidity Risk in Practice

• Sound Practices for Liquidity Risk Management
  • Developing a Structure for Managing Liquidity Risk
  • Measuring and Monitoring Net Funding Requirements
  • Managing Market Access
  • Contingency planning
  • Foreign Currency Liquidity Management
  • Examples of Liquidity reporting
  • Internal Controls for Liquidity Risk Management
• The Regulator Perspective
  • Systemic Implications of Liquidity Risk
  • How Liquidity Risk Management is Incorporated in Pillar II of the New Basel Framework
• Closer Look at Practical Tools for Liquidity Management
  • Contingency Funding Planning
  • Liquidity and Underwriting Facilities
  • MTNs, CDs, CPs and asset-backed CPs
  • Repo Market
  • Securitization and Synthetic Securitization
  • Gaining Access to Central Bank Liquidity in a Crisis Situation
• Rating Agency’s Perspective on Liquidity Risk management
• Practical Case Studies and Exercises

12.00 - 13.00 Lunch

13.00 - 16.00 Liquidity Pricing

• Reasons for Liquidity Costs
• Defining Liquidity Costs and the Pricing Factors
  • Structural Liquidity Costs
  • Contingent Liquidity Costs
• Liquidity Traders View
  • Long vs. Short cash
  • Rate paid vs. Rate Achieved
• Balancing the Costs of Overfunding/Underfunding
• Liquidity Cost Curves
• Fund Transfer Pricing
  • Transfer Prices for Liquidity
  • Liquidity Pricing for Specific Asset and Liability Classes
  • The Role of FTP in Economic Capital Allocation and Risk Adjusted Performance Measurement
• Practical Case Studies and Exercises

Evaluation and Termination of the Seminar