The Changing World of Liquidity Risk Management

In the last years we saw the focus of liquidity risk management changing.

The activity around value liquidity risk models such as Cash-Flow-at-Risk and Value-Liquidity-at-Risk before 2007 had completely stopped in the crisis when banks were focusing on simply capturing as much cash flows and financial transactions as possible in order to forecast their future liquidity exposure.

Since two years or so, almost every bank is struggling with Basel III, some of them simply satisfying the bare regulatory necessities.
Other banks have realized that this is not enough and started to measure, simulate and manage their liquidity risk also from a economic perspective - with the ultimate goal to integrate the regulatory an economic view.

Now the focus is again shifting slighly as some banks are looking at the changes in profitability stemming both from the changing refinancing markets as well as from the burdens imposed by the LCR in Basel III - which might massively impact their business model. We are involved in projects around Transfer Pricing (including liquidity) as well as minimizing the costs of the High Quality Liquid Assets in the LCR.

Forward-looking banks are also trying to get a better grip on their CounterBalancing Capacity (CBC) and how they can move assets and cash across borders to mitigate liquidity risks that might arise in a bank that operates in a multi-national structure.