Riziko likvidity | ADVANCED RISK MANAGEMENT

Liquidity Risk

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

Analysis of the business model
Identification of potential sources of liquidity risk with respect to the business model

Estimation of liability outflows in the event of a liquidity crisis
Design/verification of the procedure for determining the minimum volume of liquid assets
Models of actual maturity and volume of assets and liabilities (including off-balance sheet items)
Development of stress scenario proposals
Impact analysis of stress scenarios
Design/assessment of the methodology for developing risk indicators used to signal increases in liquidity risk

Analysis of potential sources and the speed of outflows/inflows of financial resources in a crisis situation
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 both types of scenarios
Analysis of the stress scenario impact, i.e. testing bank resistance

Design/revision of methods of risk indicator creation used as warning signs of the growth of the liquidity risk (Early Warning Indicators)
Design/revision 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 acceptable cash flow mismatch across time buckets in gap analysis
- limits based on statistical quantities (e.g. ratio of ‘quick’ liquid assets to ‘quick’ liquid liabilities)
Establishment of a monitoring process for liquidity position development through the system of defined limits

Analysis of the process of monitoring liquid position development (data sources, limits, measuring rate, method of reporting etc.)
Design of an action plan defining procedures for managing a liquidity crisis (what should be done in case of crisis and who should do it)
Independent assessment of contingency plans in case of liquidity crisis (employee awareness, roles and responsibilities, procedures for addressing liquidity stress, etc.) and analysis of their feasibility based on the results of stress testing

Verification of procedures for measuring and managing liquidity risk (operational vs. strategic management) across individual currencies, including assessment of:
- data sources
- technical implementation of liquidity risk measurement in each currency (the tool used and the method of incorporating individual assets and liabilities)
- organizational structure of liquidity management
- system of risk indicators
- system of limits
- contingency plans (i.e., strategies for immediate response to a liquidity crisis)
- documentation of the liquidity risk management system/strategy
- outputs produced within the reporting framework
- way reporting outputs are used for decision-making
Recommendations for further steps to eliminate potential deficiencies or to improve the effectiveness of liquidity risk management

Preparation/update of the ICAAP for liquidity risk
Support in measuring liquidity risk under Basel III:
- 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)
Proposal of the reporting framework for monitoring the status and development of liquidity risk over time
Assistance in the implementation of processes, reports and applications developed within Basel II/III in everyday use not only in the scope of the risk management departments but also in the other parts of the bank

Desing of a methodology for:
- modeling the maturity and volume of cash inflows and outflows
- forecasting the required minimum volume of liquid assets (using statistical methods and expert judgment)
Support in developing models
- for example: expected maturity of issued invoices reflecting customer payment delays estimated on the basis of historical data
Assessment of data used for the prediction of the minimum volume of liquid assets, such as:
- expected expenses on the basis of the agreed contracts
- wage expenses
- expected incomes

Design of methodology for:
- operational liquidity management – managing 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 liquidity management – minimizing 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/creation of rules of procedures in case of a lack of liquidity

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