The Liquidity Risk Book


Go to the website of Incisive Media (RiskBooks)

Measurement Methodology

In some senses the methodology drives what data must be captured.

How should the various products and activities of the bank be translated as a measurement of liquidity risk?
How important are the different types of contingent products for liquidity risk?

Whilst regulations specify certain treatments, these are not enough for the ongoing forecasting and management of the bank’s economic liquidity risk. LCR has developed tried and tested methodologies and incorporated them into our LiMAS software.

Exposure Modeling of Contingent Cash Flows 
Certain types of product/business activities have unknown cash flows; for example non-maturing deposits.
Customers may be able to withdraw the entire deposit without notice. Given certain market conditions or customer decisions this is more or less likely to occur. LiMAS can model the behavior of different types of contingent products under simulated conditions, which are called scenarios. The underlying transactions can be captured at sufficient granularity to allow analysis.
For example it is not necessary to capture individual deposit balances for retail customers. Data should be captured at the level where behavioral distinctions can be made along with their influence on the modeling process.

- Non Maturing Deposit Withdrawal

- Loan Drawdown

- Early Redemption

- Loan Rollovers

- New Business.