Liquidity Risk Management

Euromoney Learning Solutions

How long?

  • 3 days
  • in person

Euromoney Learning Solutions


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About the course

Learn the best practices in measuring, managing & controlling liquidity risk

The global financial crisis revealed that a far more stringent approach to Liquidity Risk Management was required across the industry. This was further reinforced by the inclusion of a formal liquidity regime within the Basel III Accords for the very first time.

Using real-life case studies and excel based simulations, this intensive 3 day workshop explains how liquidity risk is effectively measured, assessed and managed. It will consider the impact that regulation has had on the value/cost of liquidity and the role of Funds Transfer Pricing in ensuring this is reflected in asset pricing.

By the end of the course, you will be better equipped to work in or with the Liquidity Management function and achieve optimal levels of liquidity.

Learning outcomes:

  • Understand the issues relating to liquidity risk management
  • Define the sources and types of liquidity risk and how it is measured
  • Understand the need for intraday liquidity and how it is regulated Evaluate the potential impact of liquidity risk on Return on Equity
  • Calculate Liquidity Coverage Ratio and Net Stable Funding Ratio and discuss potential optimisation strategies in light of them
  • Recognise best practice in terms of Individual Liquidity Adequacy Assessment Process and Stress Testing
  • Explain the role of Funds Transfer Pricing in Liquidity Risk Management

## Agenda

** Day 1**

Defining and Assessing Liquidity Risk

  • Lessons from a crisis
  • Defining Liquidity Risk
  • Causes of the credit crunch, how funding costs varied during it, gaps in liquidity risk management and failures due to it
  • What restored confidence – co-ordinated global central bank intervention
  • The market place today and how funding portfolios have changed

Defining and Measuring Liquidity Risk

  • Types of Liquidity Risk – Funding and Market
  • Classical Measures of Liquidity Risk – Loan to Deposits Ratio and VaR
  • Modern measures of Liquidity Risk – LCR, NSFR and Liquidity Adjusted VaR
  • Analysing Gap Risk

Intraday Liquidity Management

  • Evaluating IntradayLiquidity Requirements
  • Sources of Intraday Liquidity Funding
  • Overview of BIS 248 – Key Requirements
  • Challenges in implementation and potential strategies fro optimisation

Net Interest Income [NII] and Return on Equity [RoE]

  • Recap on Standardised Approach for Credit Risk and Basel III Capital Regime
  • Gearing Linking NII to RoE
  • Impact of the Leverage Ratio
  • Consequences of Liquidity Buffer yields

Day 2

Liquidity Regulation

  • Liquidity Coverage Ratio (LCR) Part 1
  • Defining LCR and the regulators ambition for it
  • The numerators – what qualifies as ‘HQLA’ and the rules that apply for Level 1, 2a and 2b
  • The denominator – outflows for deposits, undrawn commitments and allowed inflows
  • Challenges in data segregation/implementation and potential balance sheet/ product optimisation strategies

Net Stable Funding Ratio (NSFR)

  • Defining NSFR and the regulators ambition for it
  • The numerator - what qualifies as and allowances for Available Stable Funding
  • The denominator – what qualifies as and charged for Required Stable Funding
  • Impact of NSFR on banks costs and strategies

Beyond Pillar 1 - The Individual Liquidity Adequacy Assessment Process

  • Overview of the Liquidity Supervisory Review and Evaluation Process
  • Purpose and Governance of the ILAAP
  • Transition from ILAA to ILAAP
  • Managing and testing High Quality Liquidity Assets buffers

Beyond Pillar 1- Stress Testing

  • 5 Steps of Stress Testing
  • Stress-tests: key scenarios relating to business activities, products and portfolio
  • Pragmatic considerations in stress testing e.g. controlling pipeline
  • Resolution Planning

Day 3

Funds Transfer Pricing [FTP]

Role of Funds Transfer Pricing [FTP] in Liquidity Risk Management

  • Defining FTP
  • What is it?
  • Why have it?
  • Evolution of FTP methodologies
  • Zero cost curve
  • Average cost curve
  • Maturity matched curve
  • The regulatory view
  • FTP as an appetite statement/rudder to steer the ship

Deriving the FTP Curve

  • Market sources and proxies
  • Secondary Trading
  • CDS
  • Peer spreads
  • Use of basis and cross currency swaps
  • Ownership and governance

Role of FTP in Deposit Portfolio Management

  • Methods for ‘Behaviouralising’ of deposits portfolios
  • Having confidence in behaviouralisation - Importance of governance
  • Combining FTP curve with behaviourlisation
  • Stock/ Flow FTP curve blending
  • Adjusting for buffers
  • Risks of un-wind
  • Driving behaviours
  • Importance of communication
  • Aligning business incentivisation
  • Tools/products to optimise

Looking ahead and wrap up

  • Total Loss Absorbing Capacity [TLAC]/Minimum Requirement for Eligible Liabilities [MREL]
  • Overview of Basel IV – focus on consistency
  • What does this mean for liquidity risk management
  • 3 days in 15 minutes – review of key points from the program


Gareth Vance

Gareth’s banking career spans more than two decades.From 2010 to 2014 he was Head of Barclays Corporates £110 billion liquidity portfolio, tasked with the end-end ownership of pricing and structuring of the portfolio and ensuring that margins were achieved whilst delivering funding ambitions and ...

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Liquidity Risk Management at Euromoney Learning Solutions

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