Liquidity Risk Management

Supervisory Requirements and Industry Practice

Agenda Program
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Prague, NH Hotel Prague
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How you will benefit:

An understanding of the revised standards
Gain theoretical and practical understanding of liquidity risk management
Understand links between liquidity risk management and other regulatory initiatives such as IIRBB and FRTB
Understand risk transfer, fund transfer pricing
Gain experience of facing regulatory challenge
Course Overview and Objectives:

Arguably, loss of liquidity rather than capital inadequacy was the primary driver of failure of financial institutions during the 2008 financial crisis. Regulators have responded with guidance on best practice in the form of principles; new quantitative requirements, for example LCR and NSFR; and a revised and deeper liquidity review process.

This course provides a comprehensive overview of the current regulations in place including BCBS documents, supervisory statements on approaches to the review process, existing CRR requirements and draft revisions to CRR published in November 2016. These requirements will be compared with industry practice and also the interaction of these regulations with other regulatory initiatives, e.g. IRRBB and regulatory capital requirements (particularly under the revised market risk rules - FRTB).

Participants will engage in spreadsheet-based exercises that will give them practical experience in calculating LCR and NSFR, explore the interaction with interest rate risk in the banking book (IRRBB) requirements. They will also participate in a role-playing exercise where they practice responding to regulatory scrutiny.

Who should attend?

Analysts, Vice Presidents, Directors, Senior Managers in:
  • Treasury Functions
  • Capital Management
  • Regulatory Compliance
  • Governance
  • Audit
  • Risk Analytics
  • Liquidity Risk Management
Participants are encouraged to bring their own notebook with MS Excel to maximize the interaction, practical examples and benefit from the seminar.

Program of the seminar: Liquidity Risk Management

The seminar timetable follows Central European Time (CET).

09.00 - 09.15 Welcome

09.15 - 12.15


  • Defining liquidity risk
    • Virtuous and Vicious circles of liquidity
  • Basel III framework
    • Capital and Liquidity
    • The Central Bank and Supervision
    • Solvency and Liquidity
  • The need for liquidity risk management
    • The strategic decision - making process
    • Some liquidity risk measures
    • Balance sheet liquidity Model framework
    • Cash Flow Approach
  • Case studies
    • Lehman
    • Northern Rock

12.15 - 13.15 Lunch

13.15 - 17.00 Regulatory Requirements

  • BCBS136 and BCBS144 - The Principles
  • Basel III
    • Introducing papers BCBS 188, BCBS 238, BCBS 248, BCBS 272 and D295
    • The LCR (liquidity coverage ratio)
      • Summary
      • Scope, timeline and Phase-In requirements
    • Calculating and Implementing the Liquidity Coverage Ratio (LCR)
      • Quantitative vs. qualitative requirements
      • Reporting Template design
      • High Quality Liquid Assets
        • Definition and Characteristics
        • Types - Level I vs. Level II
        • Operational requirements
        • Treatment of specific assets (MBS, Equities)
        • Treatment of assets received as collateral
      • Net Cash Outflows
        • Definition
        • Calculation
        • Run-off factors and inflow rates
        • Treatment of specific instruments (derivatives, stable vs. non-stable deposits)
        • Effects of downgrade triggers, valuation changes, etc.
      • Monitoring Tools
    • Example Calculating LCR using published bank data
    • Role-Playing Exercise
      • Prepare an LCR regulatory report based on the earlier exercises but with revised assumptions
      • Meet the regulator for a regulatory review meeting
      • Exercise review and discussion

09.00 - 12.15

Regulatory Requirements (continued)

  • NSFR (net stable funding ratio)
    • Definition and Calibration
    • Disclosure requirements
      • Quantitative vs. qualitative requirements
      • Reporting Template design
    • Components for NSFR Calculation
      • Available amount of stable funding
      • ASF categories/factors
      • ASF category components
      • Treatment of derivative liability amounts
      • Interdependent assets and liabilities
      • Required amount of stable funding
      • RSF categories/factors
      • RSF category components
      • Treatment of encumbered Assets, derivatives, secured financing transactions and off-balance sheet exposures
      • Interdependent assets and liabilities
    • EU Implementation
  • Intraday liquidity risk management (BCBS 248)
    • A sound Principle
    • Definitions
    • Intraday liquidity sources and uses
    • Monitoring tools - with some comments
    • Stress Testing (brief discussion of requirements)
    • CRD
    • EBA Guidelines
    • ECB SSM Guides on ICAAP and ILAAP

12.15 - 13.15 Lunch

13.15 - 17.00

A Sound Liquidity Risk Framework

  • Risk Appetite Framework
  • Evolution of Liabilities Management
  • Leverage and the Economic Cycle
  • Funds Transfer Pricing (FTP) and other risk transfers
    • Link between FVA and DVA
  • Simulation Models, Monte Carlo and option pricing
    • Behavioural Options
  • Stress Testing
    • Regulatory requirements
    • A Monte Carlo Solution
    • Bayesian Solutions
      • Conditional probabilities of scenarios
      • Bayesian Networks

Other relevant topics (Time permitting)

  • Consideration of interest rate risk and IRRBB requirements
  • FRTB/Revised CRR and the banking book/trading book boundary

Evaluation and Termination of the Course

Training catalogue in PDF
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