Liquidity Risk Assessment Tools | ALM System | Banking Diploma exam l TMFI |EP-8
Channel: BL Academy
Date: 2024-01-14

This video is part of my series on Asset Liability Management at banks. It gives a short overview over Liquidity Management in Bank which is an important part of market risk management.
Related Link Video :
https://www.youtube.com/watch?v=6e238pBeTl8&t=1384s
https://www.youtube.com/watch?v=jfK_1yA37Mc&t=1208s
https://www.youtube.com/watch?v=hRnybW7gOkI

Concept of Liquidity Risk:
Liquidity risk occurs in the bank when the financial obligations of the customers are not fulfilled within the required time period or inability to meet its obligations when they come due without incurring unacceptable losses. Liquidity risk also arises from the failure to identify the changes of the market conditions that affect the ability to liquidate the assets quickly and with least loss in value. 

Types of Liquidity Risk
Funding risk: Net outflow of fund due to withdrawal of fund
Time risk ( When a borrower fails to meet his repayment commitment
Term liquidity risk (due to discrepancies between maturities),
Withdrawal/call risk (mass disinvestment before maturity or fresh funds when contingent liability become due),
Structural liquidity risk (when the necessary funding transactions can not be carried out or only on less favorable terms);
Market liquidity risk (a market's ability to allow assets to be bought and sold easily and quickly, like; capital markets if shares easily & quickly bought & sold and little impact on share prices

Assessment of Liquidity Risk Tools
Liquidity Coverage Ratio (LCR)
Net Stable Funding Ratio (NSFR)
Leverage Ratio 
Advance to Deposit Ratio (ADR)
Maximum Cumulative Outflow (MCO)
Medium-Term Funding ( MTF)
Wholesale Borrowing Guidelines (WBG)
Commitments
Structural Liquidity Profile (SLP)