Advanced Risk Management, s.r.o. offers its services in the area of liquidity risk to financial and non-financial companies.
In the area of liquidity risk we also offer professional seminars
in the form of open and in-house seminars.
See our offer of CADCalc®Market
a software tool for effective market and liquidity risk management.
Offer for Financial Institutions
Measurement of Liquidity Risk
- Modeling of accounts receivable collection, volume of assets, liabilities and off-balance sheet items:
- Creation of a model on the basis of our know-how with the utilization of statistical methods and expert opinion.
- Processing a model on the basis of real data of a bank taking into consideration its historical development and strategy.
- Verification of an existing model of real maturity of assets, liabilities and off- balance sheet items according to both methodology and its technical implementation.
- Determination of the minimum volume of liquid assets:
- A proposal of methods for determining the required minimum volume of liquid assets.
- Processing a model on the basis of real data of a bank, taking into consideration historical development and strategy.
- Verification of the existing procedure for establishing the minimum volume of liquid assets according to both methodology and its technical implementation.
- Analysis of potential sources and speed of outflow/inflow of financial resources in case of risk.
- Analysis of the bank’s dependency on the interbank market and concentration rate on the liability side.
- Creation of stress scenario proposals for crisis situations to simulate the situations which do not usually occur in banks:
- Firm-Specific Scenarios – factors affecting only the bank (e.g. sudden outflow of clients’ deposits as a result of the bank’s declining rating),
- Market Stress Scenarios – factors causing system-wide liquidity crises (e.g. the impossibility of conversion of domestic currency into foreign currency in case of market crisis),
- Combination of bouth types of scenarios.
- Analysis of the stress scenario impact, i.e. testing bank resistance.
Risk Indicators and Limits
- A proposal of methods of risk indicator creation used as warning signs of the growth of the liquidity risk (so-called Early Warning Indicators).
- A proposal of methods for setting limits for liquidity risk management in individual currencies as well as on the whole (for all currencies altogether), mainly:
- Limits related to the maximum permissible maturity mismatch in individual time intervals,
- Limits based on statistical quantities (e.g. ratio of ‘quick’ liquid assets to ‘quick’ liquid liabilities).
- Assessment of existing methods of risk indicators and limits selection for liquidity risk management.
- Assistance during the setting up of the process of liquid position monitoring.
Contingency Plans for Liquidity Risk Management
- Analysis of the process of monitoring liquid position development (data sources, limits, measuring rate, method of reporting etc.).
- An action plan in case of liquidity crisis (what should be done in case of crisis and who should do it).
- An independent assessment of contingency plans in case of liquidity crisis (awareness, legal duties and responsibilities and loss mitigation procedures) and analysis of their feasibility based on stress testing results.
Analysis of the Liquidity Risk Management System
- Verification of procedures for measurement (including an assessment of data sources) and control of liquidity risk (operational management versus strategic management) in individual currencies, alternatively a submission of proposals on changes necessary for their improvement.
- Assessment of technical implementation of measuring liquidity risk in individual currencies, i.e. assessment of the instrument used and method of inclusion of individual assets and liabilities.
- Assessment of liquidity management organizational arrangement.
- Assessment of the system of risk indicators, limits and emergency plans (strategies for the immediate solution to the liquidity crisis).
- Inspection of sufficient documentation of the liquidity risk management system (strategy).
- Analysis of outputs which are created in the scope of reporting and assessing the method of their utilization during the process of decision making.
Liquidity Risk according to Basel II / Basel III
- Support with the adoption of Basel II Pillar 2 measures related to liquidity risk, i.e. processing/updating of ICAAP related toliquidity risk.
- Support with the adoption of Basel III measures related to liquidity risk:
- Methods of determination and calculation of a short-term liquidity indicator (Liquidity Coverage Ratio – LCR),
- Methods of determination and calculation of a medium-term liquidity indicator (Net Stable Funding Ratio – NSFR),
- Assessment of the so-called monitoring instruments (maturity discrepancy, concentration of funding sources, accessible assets, market indicators).
- A proposal of the reporting form of liquidity risk and its development over time.
- Assistance in the implementation of processes, reports and applications developed within Basel II (or Basel III) in everyday use not only in the scope of the risk management departments but also in the other parts of the bank.
Offer for Non-Financial Institutions
Measurement of Liquidity Risk
- Desing of a methodology for the modeling of cash inflows and outflows, incl. modeling of accounts receivable collection (e.g. modeling of expected time until an invoice is paid, based on historical data).
- Desing of a methodology for predicting the required minimum volume of liquid assets using statistical methods and expert opinion.
- Assessment of data used for the prediction of the minimum volume of liquid assets at the same time (e.g. expected expenses on the basis of the agreed contracts, wage expenses and expected incomes).
Liquidity Risk Management and Setting Limits
- A proposal of methods for liquidity risk management:
- Operational management – control of the minimum volume of liquid assets on the basis of harmonization of cash flows (creation of a cash flow map) and minimization of costs of funding.
- Strategic management – minimize the cost of financing in the medium and long term.
- Analysis of an existing process of liquidity risk management, particularly an assessment of correctness and completeness of internal regulations for liquidity risk management (including the determination of minimum balance on the current account) and a proposal on their possible modifications.
- Assessment (or creation) of the rules in case of the lack of liquidity.