The Great Financial Crisis (GFC), which began in August 2007 and whose effects are still being felt today, brought to center stage the preeminent role of liquidity risk and funding risk measurement and management. Maturity mismatches, excessive reliance on volatile funding, and an imperfect understanding of funding and market liquidity interaction as well as behavior of depositors – both insured and uninsured – led many institutions to be unprepared for the tumultuous effects of sudden drops in actual and perceived asset quality that brought down many large financial institutions. This course reviews fundamental concepts of liquidity risk measurement and management, central bank liquidity measures after the GFC (e.g. Basel III liquidity metrics, contingency funding plans and liquidity transfer pricing, Internal Liquidity Adequacy Assessment Process requirement) and the growing use of liquidity stress testing. The course also covers big data analytics for monitoring intraday and systemic liquidity risk.
By the end of the course, participants will be able to explain how and why banks fail because of inadequate liquidity risk management; understand interaction between market liquidity risk and funding liquidity risk; understand both the rationale and the mechanics of Basel III liquidity metrics, survival horizon analysis, and other contemporary metrics and tools of liquidity risk management; know how to assess the adequacy of a contingency funding plan and an ILAAP; understand the basics of liquidity transfer pricing and liquidity stress testing; and master a simple and intuitive big data tool for liquidity risk assessment.
This course is intended for financial stability or banking supervision personnel with more than two years of experience, and with a role in either developing or applying policies to address liquidity risk management at commercial banks and other depository institutions. Participants should have a basic understanding of the Basel Core Principles of Effective Banking Supervision and other Basel Committee documents related to liquidity and have experience reviewing a bank’s liquidity position either on an on-site examination or through the off-site monitoring process. By invitation of SEACEN member central banks / monetary authorities, officials of stand-alone financial sector regulatory authorities and deposit insurance agencies are also encouraged to apply.