Overview

This eCourse consists of three modules on liquidity risk management. Module 1 examines why liquidity issues such as those experienced during the crisis can arise, and how both regulators and banks have changed their approach to assessing and managing liquidity risk since the crisis. The tutorial also introduces the concept of ALM and outlines how liquidity risk is managed as part of a bank’s overall ALM strategy.

Module 2 describes tools and techniques for managing liquidity risk, including liquidity gap analysis, cash flow forecasting, and key ratios such as the loan/deposit ratio, LCR, and NSFR, to ensure banks meet obligations under all conditions.

Module 3 focuses on some of the strategies that banks use to minimize liquidity risk and ensure they have adequate sources of funding in stress situations.

Objective

On completion of this course, you will be able to:
- Recognize the reasons why the nature of the banking business means that banks are particularly exposed to liquidity risk
- Identify the problems with liquidity risk management that were exposed by the global financial crisis and the regulatory response to this
- Recognize the relationship between asset-liability management and liquidity risk
- Identify the key components of the liquidity risk management framework
- Recognize the role of liquidity gap analysis and cash flow forecasting in assessing liquidity risk
- Identify the various ratios that banks use to measure liquidity risk such as the liquidity coverage ratio (LCR) and net stable funding ratio (NSFR)
- Recognize various key issues in liquidity risk measurement
- Identify the tools and techniques used to identify and address likely or potential funding needs and liquidity shortfalls
- Recognize the role of liquidity buffers and contingency funding plans (CFPs) should unexpected events occur
- Recall how assets and liabilities are managed by the bank as part of its funding and balance sheet management strategy
- Recognize how the management of liquidity risk can create other risks that need to be identified and effectively managed

Content

Module 1: Liquidity Risk - An Introduction
Topic 1: Overview of Liquidity Risk
Topic 2: Regulatory Requirements
Topic 3: Liquidity Risk Management
Topic 4: Tools & Techniques for Managing Liquidity Risk

Module 3: Liquidity Risk – Measurement
Topic 1: Liquidity Gap Analysis & CF Forecasting
Topic 2: Liquidity Coverage Ratio
Topic 3: Net Stable Funding Ratio (NSFR)
Topic 4: Other Liquidity Measures
Topic 5: Measurement Issues

Module 2: Liquidity Risk - Management
Topic 1: Overview of Liquidity Risk Management
Topic 2: Managing Liquidity Risk
Topic 3: CFPs
Topic 4: Funding & Balance Sheet Management
Topic 5: Risk Management & Reporting