Liquidity Risk Management for Financial Institutions

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1 Liquidity Risk Management for Financial Institutions A 2-day workshop for CFOs, CROs, Treasurers, Business and Risk Managers

2 Course Background Liquidity risk management is extremely essential to the survival and growth of any financial institution. A key characteristic of the global financial crisis was the inaccurate and ineffective management of liquidity risk. The workshop is designed to provide participants with a thorough understanding of Liquidity Risk Management and its key challenges and strategies for banks. Course Objectives Understand key challenges and develop strategies how to tackle them Look critically at liquidity risk and how it can be managed and controlled Be aware of the regulatory developments and its impacts on banks Define and articulate a comprehensive liquidity risk appetite and operationalize it into the day-to-day risk taking activities Understand liquidity risk measures that are being adapted to reflect the complexities of the financial markets Be able to implement modern key risk indicators / metrics Define liquidity stress testing scenarios and assumptions Develop an effective and plausible contingency plan Understand current industry best practices Course Outline Day 1 The global financial crisis and failures of financial institutions review, conclusions, and outlook Liquidity Risk within the Supervisory Frame Basel II / Basel III / Dodd-Frank General Issues o Focus of the regulators o Liquidity risk and capital adequacy o Capital buffers o Supervisory rules o The regulatory regime: qualitative and quantitative standards o Regulatory responses to liquidity problems: guarantees, insurance, recapitalisation, bad banks Examining regulatory responses and options to bank resolution in a crisis, distinguishing liquidity failure from solvency failure Inter-relationship between liquidity regulation, capital adequacy and other prudential measures Basel II o Basic principles to the ordinance on liquidity o Pillar III disclosure requirements on liquidity Basel III o What is Basel III?

3 o Implications for Financial Institutions o Case Study Deutsche Bank o The Basel III ratios Liquidity Coverage Ratio and the Net Stable Funding Ratio Dodd-Frank in the United States Where does it all go & What Impacts do all regulatory Changes have? Analytical Overview / Governance Forms of liquidity Defining liquidity risk: funding and market liquidity The relationship between liquidity and solvency Funding appropriate for the risk profile and commercial needs of the assets, products and business lines Stability, diversity and tenor matching of funding sources Key issues: off balance sheet, derivatives, securitisation, intraday Gap management across tenor and currency buckets Strategy for liquidity risk, policies and practices Inter-relationship between liquidity, credit, market (interest rates), operational, legal and reputation risks Bank Rating how do Rating Agencies look at Liquidity Risk Complications from financial, contractual and real options in assets and liabilities Relevant Parameters affecting liquidity status A Policy Framework for Liquidity Sound Practices Policy scope and frame Managing the Balance Sheet Purpose and Roles of ALCO o Managing Interest Rate & Currency Risk o Funding & Capital Planning o Profitability o Net Interest Income Authorities and responsibilities o Organisational issues o Board of Directors o Central ALCO o Treasury o Risk Committee o Case Study Reports and reporting frequency Intra-group Liquidity Transfers Fund Transfer Pricing (FTP) Overview of fund transfer pricing Improvement of cash flows, earnings, risk and value through FTP Alternative methods and addressing fund transfer pricing objectives Approach for implementation of fund transfer pricing mechanism Using the FTP for performance forecasting and measuring branch profitability Incentives, policies and procedures Practical Challenges

4 Day 2 Forecasting, Measuring and Monitoring Funding Requirements The Components of the Balance Sheet Liquidity position by currency, cross-border and legal entity Liquidity by maturity The liquidity balance sheet Cash Flow presentation and forecasting Future cash flows of assets, liabilities and off-balance sheet items Asset and funding diversification strategies Estimation of funding capacity Stable funding concept Liquidity at Risk (LAR) Liquidity Value at Risk (LVAR) Risk buffers Modelling non-maturing products for interest rate and liquidity models Deterministic and stochastic behaviour of instruments Cash Flow of financial derivatives Scenarios Trading / derivatives Issues Case study Managing Liquidity Risk Metrics and Limits Range of liquidity metrics Maturity mismatch approach gap analysis Modelling behavioural adjusted liquidity gaps best practices Concentration risk Market indicators Liquidity ratios Limits and risk tolerances Internal and external communications Liquidity Stress Testing Why stress test liquidity General considerations Current stress test priorities Balance sheet items Sensitivity and scenario analysis o Shock events o Other stress scenarios o The subprime crisis Assumption sensitivity Additional considerations

5 Contingency Planning Contingency planning governance Strategy and organisation Communication Asset reduction and financing strategy Liability related strategies Off-balance strategies Early indicators Back up liquidity: unencumbered assets, liquidity pool, committed facilities, Central Bank s marginal lending facilities Q&A Speaker Profile Mr. Peter Buerger, Managing Partner, Risk-and-more, Germany Peter Buerger is the Managing Partner of Risk & More. In his more than 20 years in the financial services industry, Peter has acted in various management capacities, both at strategic and operative functions while accountable for projects of various sizes both within Germany and internationally. His core area of work and experience is in financial risk management. Peter has been working as a consultant and trainer since Prior to this, Peter worked for large international financial institutions, i.e. as Global Head of Risk Control for Commerzbank Group in Frankfurt, Germany and as Head of Strategic Risk Management & Control for HypoVereinsbank / UniCredit Group in Munich, Germany. In his role as Global Head of Risk Control for Commerzbank Group, Peter was responsible for the Basel II project of the institution. The project included all relevant project phases (advanced approaches), business and strategic aspects; all risk types (credit risk and operational risk) and interaction with regulators world wide. He was a member of top management committees of the respective institutions. Peter also brings in operative risk management experience from his role as branch manager for Commerzbank s business in London, United Kingdom. In this role, Peter was responsible for credit risk management in the region Western Europe and South Africa, which included a significant credit sanctioning competence. Peter spent the first ten years of his career in the capital markets business. One of his key roles was Head of Risk & Compliance for Commerzbank s derivatives subsidiary Commerz Financial Products. Peter s expertise and experience covers a broad business and product spectrum retail banking, corporate lending, investment banking, asset management, commercial real estate and risk types: credit risk, market risk, liquidity risk / ALM, operational risk. Beyond Risk Management, Peter s consulting focus also links into corporate strategy, governance, costcutting and post-merger integration. Peter was educated in the United States; he holds an MBA from Long Island University in

6 New York. He also completed the Advanced Management Program at the INSEAD Business School in Fontainebleau, France. Target Audience CFOs, CROs Treasurers Liquidity Risk Managers Market Risk Managers Traders Auditors (internal & external) Regulators Course Details and Registration Course Fee: PKR 49,500/- per participant Program Dates: Sep 25-26, Location: IBP, Karachi Timings: 9 am to 5 pm For registration, please contact Mohammad Akram, Saba Majeed Phone: , Ext. 217, Website: Last Date of Registration: Sep 07, 2012 Nominations will only be accepted with advance payment in the name of Institute of Bankers Pakistan

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