Liquidity Risk Management - Supervisory Requirements and Industry Practice

Day One

09.00 - 09.15 Welcome

09.15 - 12.00

Introduction

  • 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

Day Two

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)
  • ILAAP
    • CRD
    • EBA Guidelines
    • ECB SSM Guides on ICAAP and ILAAP

12.15 - 13.15 Lunch

13.15 - 16.30

A Sound Liquidity Risk Framework

  • Liquidity 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
  • Contingency Fund planning and Stress Testing
    • General requirements
    • A Monte Carlo Solution
    • A Bayesian Solution
  • Risk Appetite Framework

Other relevant topics (Time permitting)

  • Consideration of interest rate risk and IRRBB requirements
  • FRTB/Revised CRR
  • Position and risk transfer between the banking book and the trading book
  • Liquidity risk and interest rate risk capitalisation on the trading book

Evaluation and Termination of the Course

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