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Liquidity Risk Basics

Liquidity Risk Basics



Time: 2:00 pm EST


As interest rates are rising and loan volume strengthens, Liquidity risk is once again front and center in the eyes of the regulators. And with good reason!  How strong is your process for measuring and managing your liquidity needs?  How is your liquidity plan different from plans for funding the institution?  Have you developed and tested the proper contingency plans in the event of a crisis?

During the past 8 years, liquidity was a concern, but was often overlooked given the strong levels within the industry.  However, processes that were considered acceptable are now coming under scrutiny, and you need to be prepared to show your liquidity risk management process under control!

This 1-part session we will cover the basics of liquidity measurement and management.  We will look at various measures of liquidity and how the fit into the framework of regulatory expectations and institutional use.  We will explore the concept of “contingency plans” and address the items that should be included in your plan.

What is the current regulatory expectation for your liquidity process?  Are you prepared to show examiners that your system covers all the required concerns and you are prepared to handle a variety of potentially stressful liquidity events?Participants will cover the following areas of liquidity risk measurement taking away usable calculations and approaches to apply in their financial institution:

  • A functional definition of liquidity
  • Understand the difference in Asset Based Liquidity vs. Total Liquidity
  • Outline major causes of Liquidity risk in financial institutions
  • Gain insight into how liquidity fits in to the ALM framework
  • Review current regulatory approach and guidance
  • Outline how to build common regulatory measurements for liquidity including
    • Asset based liquidity ratios
    • Cash flow based measures
    • Common “trigger ratios” for monitoring changes
  • Review ideas on setting acceptable policy limits for your institution
  • Discuss the need for various levels of contingency plans for your institution