Large Bank Supervision Forum eBook

LIQUIDITY RISK

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Internal Use Only Traditionally, Liquidity was analyzed using the following key metrics, which made sense in a cash centric society . . .

Liquidity Ratios - Current Quarter Liquidity Ratios - Current Quarter

Liquidity Type, Priority and Targets 1. Cash Liquidity – 2% to 5% 2. On Balance Sheet Liquidity >= 10% 3. On Balance + Borrowings Capacity >= 20% 4. Total Available Liquidity >= 25%

10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0%

45 .73%

25 .67%

10 .80%

0.0% 5.0%

The issue is that on-balance sheet cash liquidity is not available until day 2 or 3, by then the game is over!

1.26%

On Balance Sheet On Balance Sheet Liquidity Liquidity + Borrowing Capacity

Example Bank

Cash Liquidity

Total Available Liquidity

Total Cash and Cash Equivalents Available Current Unpledged Investment Capacity

6,888

6,888

6,888

6,888

52,139 59,027

52,139 59,027 81,349 140,377 140,377 518,747 28,000 546,747 25.67% 20.00%

52,139 59,027 81,349 140,377 109,663 250,040 518,747 28,000 546,747 45.73% 30.00% 15.73%

Total Cash + On Balance Sheet

6,888

Current Remaining Borrowing Capacity

Total Cash + On Balance sheet + Borrowing Capacity

6,888

59,027

Current Remaining Wholesale Capacity

Total Available Liquidity

6,888

59,027 518,747 28,000 546,747 10.80% 10.00%

Total Deposits

518,747 28,000 546,747

Short-Term Borrowings (< 12Months) Total Deposits + Short-Term Borrowings

Liquidity Ratio Threshold Level

1.26% 2.00%

Excess / (Deficit) of Threshold

(0.74%)

0.80%

5.67%

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