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Liquidity risk measurement, monitoring, and management objectives

enhanced regulatory compliance & risk management

objective: develop a liquidity risk measurement and monitoring process that:

establishes a foundation for routine liquidity management including the use of an asset-based liquidity reservoir or buffer
identifies liquidity risk drivers, indicators, and scenarios
estimates the timing, duration, and severity of potential liquidity shortfalls
quantifies available & contingent sources of liquidity to alleviate shortfalls

objective: develop an effective liquidity risk management process

determine Board & ALCO liquidity risk appetite via cost/benefit analysis of the liquidity reservoir
develop policies & procedures with clearly defined action steps consistent with the timing, duration, and severity of potential liquidity shortfalls and the Boards’ risk appetite
on both a periodic and ad hoc basis, review processes & policies for compliance with regulatory guidance and industry better practices

real world solutions >

real time ALCO reporting? Over the past few years, there have been days with historically high interest rate volatility. After several such days, the management of Sample Bank believed their annual budget was no longer accurate.

Working with the ALMnetwork, Sample Bank produced forecasts based on rates “as of” the prior days’ close. While not exactly “real-time” reporting, next day reporting was useful to the management of Sample Bank in comprehending their new earnings position, formulating new tactics and strategies, and fine-tuning their pricing.