This book is a practical reference which will enable senior managers within banks and other organizations to develop a business framework which takes into account liquidity risk at every level of the organization which includes liquidity risk. Liquidity risk is in the limelight as rarely before, however even recently published books on liquidity emphasize the management aspects and largely neglect a simple fact: under severe liquidity stress, a bank is challenged in many ways and on different levels. Simply focusing on liquidity management at business unit or product level does not take these aspects into sufficient consideration. This book addresses this by showing how the whole business must and can be protected by creating a financial policy and liquidity framework which protects the organization from liquidity risk at all levels with a top down approach. Section 1: An introduction to Liquidity Risk and interrelated risks such as solvency, interest rate risk etc. are explained and the relationship and its difference respectively discussed. Section 2: Creating a business framework which can include liquidity policy. This section also shows the interrelationship between liquidity and other aspects of the business. Section 3: Defining Liquidity policy in your organization. This section addresses limit setting, defining stressed conditions and reporting. The section concludes with the necessary elements of building a contingency plan. As banks are not easily comparable, there will be a set of possible solutions that can be applied according to the specific circumstances of the individual bank. Section 4 : The impact of various forms of stress are shown and the liquidity balance-sheet is developed and the key risk areas are defined. Simple mathematical concepts and modelling techniques are explained and the author then shows how to measure and quantify the risk through these techniques. Section 5: The case of Commerzbank under stress in late 2002 is presented to show the workings of a bank under real conditions of stress. The case study shows which measures and actions were successful or not and why.
Book Details:
- Author: Rudolf Duttweiler
- ISBN: 9780470740460
- Year Published: 2009
- Pages: 304
- BISAC: BUS027000, BUSINESS & ECONOMICS/Finance
About the Book and Topic:
This book is a practical reference which will enable senior managers within banks and other organizations to develop a business framework which takes into account liquidity risk at every level of the organization which includes liquidity risk. Liquidity risk is in the limelight as rarely before, however even recently published books on liquidity emphasize the management aspects and largely neglect a simple fact: under severe liquidity stress, a bank is challenged in many ways and on different levels. Simply focusing on liquidity management at business unit or product level does not take these aspects into sufficient consideration. This book addresses this by showing how the whole business must and can be protected by creating a financial policy and liquidity framework which protects the organization from liquidity risk at all levels with a top down approach. Section 1: An introduction to Liquidity Risk and interrelated risks such as solvency, interest rate risk etc. are explained and the relationship and its difference respectively discussed. Section 2: Creating a business framework which can include liquidity policy. This section also shows the interrelationship between liquidity and other aspects of the business. Section 3: Defining Liquidity policy in your organization. This section addresses limit setting, defining stressed conditions and reporting. The section concludes with the necessary elements of building a contingency plan. As banks are not easily comparable, there will be a set of possible solutions that can be applied according to the specific circumstances of the individual bank. Section 4 : The impact of various forms of stress are shown and the liquidity balance-sheet is developed and the key risk areas are defined. Simple mathematical concepts and modelling techniques are explained and the author then shows how to measure and quantify the risk through these techniques. Section 5: The case of Commerzbank under stress in late 2002 is presented to show the workings of a bank under real conditions of stress. The case study shows which measures and actions were successful or not and why.
Liquidity risk arises from situations whereby a party interested in trading an asset cannot do so because nobody in the market wants to trade that asset. Liquidity risk is a financial risk due to uncertain liquidity. An institution might lose liquidity if its credit rating falls, it experiences sudden and unexpected cash outflows, or some other even causes counterparties to avoid trading or lending to the institution. A firm is also exposed to liquidity risk if markets on which it depends are subject to loss or liquidity, the credit crunch being the most obvious example of this.
UNIQUE PERSPECTIVE. No other book gives the reader practical instruction on how to create a organization wide liquidity policy. TIMELY: liquidity is at the top of banks agendas because of the credit crisis – how do they deal with it and how do they manage it. CASE STUDIES – uses major bank case studies to illustrate how poor management of liquidity risk and lack of policy can affect a bank and where and when to implement risk management.
About the Author
Rudolf Duttweiler, Grub Switzerland is a lecturer in bank treasury management at the University of St Gallen. Prior to this he was a Group Treasurer at Commerzbank in Germany for 20 years. During his professional career he published on treasury and liquidity aspects in both German and English