Certified Liquidity Risk Professional (CLRP): Liquidity Risk - Measurement, Management, and Mitigation

Introduction

The 2008 Financial Crisis, which highlighted the significant impact of liquidity risk, has led to increased scrutiny and regulatory focus on how financial institutions manage this type of risk. As a result, liquidity risk management has become a critical area of focus within the broader field of risk management, particularly in the context of Basel III regulations. This 20-hour course is designed to provide participants with a comprehensive understanding of liquidity risk, its various forms, and the tools and strategies necessary to manage and mitigate it effectively.

Course Objectives

By the end of this program, participants will be able to:

- Understand the different forms of liquidity risk and identify their sources.

- Analyze funding and asset liquidity risks and assess their impact on financial stability.

- Evaluate the role of governance and organizational structure in managing liquidity risk.

- Apply standard methods for measuring liquidity risk, including Liquidity Value at Risk (LVaR) and stress testing.

- Develop and implement a contingency funding plan to address potential liquidity crises.

- Navigate the regulatory environment related to liquidity risk, focusing on Basel III requirements.

Who Should Take This Course?

This course is ideal for:

- Risk management professionals in banks and financial institutions.

- Treasury and liquidity management specialists.

- Financial regulators and compliance officers.

- Bank managers and executives responsible for asset and liability management (ALM).

- Professionals in financial planning and analysis (FP&A) focusing on liquidity risk.

Program Outline

Understanding Liquidity Risk

Module 1- Introduction to Liquidity Risk

  - Defining liquidity risk within a banking context.

  - Exploring the role of liquidity risk in the 2008 global financial crisis.

  - Identifying types and drivers of liquidity risk: Asset Liquidity Risk and Funding Liquidity Risk.

  - Framework for assessing liquidity risk.

  - The BCBS’s Principles for sound liquidity risk management and supervision.

Module 2- Funding Strategy

  - Importance of a bank's funding strategy in liquidity risk management.

  - Aligning funding sources with the risk profile of assets.

  - Key considerations: Stability, diversity, and tenor matching of funding sources.

  - Refinancing risks in money markets and capital markets.

  - Key metrics for measuring funding strategy and refinancing risk.

Module 3 - Asset Liquidity

  - Defining and measuring liquid and illiquid assets.

  - Understanding the liquidity of assets under stressed market conditions.

  - Key metrics for measuring asset liquidity and funding needs.

  - Collateral-based liquidity transactions (e.g., securities financing transactions).

  - Collateral assessment: Haircuts, margins, and central bank eligibility criteria.

Managing Contingencies and Governance

Module 4 - Contingencies

  - Understanding liquidity risk from contingent exposures.

  - Managing margin calls from derivative and repo contracts.

  - Liquidity risks associated with off-balance sheet exposures, including securitizations and guarantees.

  - Intra-day liquidity risk: Managing cash flows and settlement balances.

  - Developing a robust contingency funding plan for stress scenarios.

Module 5- Liquidity Risk Measurement

  - Introduction to Liquidity Value at Risk (LVaR) as a tool for quantifying liquidity risk.

  - Balance sheet analysis for assessing liquidity.

  - Ratio approaches Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR).

  - Tools for ongoing liquidity risk monitoring.

  - Stress testing liquidity gaps and applying scenario analysis.

  - Advanced measurement techniques: EWMA and GARCH for volatility estimation.

Module 6- Liquidity Governance and Forecasting

  - Establishing liquidity risk tolerance and governance structures.

  - Internal Liquidity Adequacy Assessment Process (ILAAP).

  - Asset and liability management (ALM) within liquidity risk management.

  - Forecasting liquidity needs Tools and techniques for accurate prediction.

  - Managing liquidity in complex financial groups.

  - Ensuring compliance with regulatory ratios: LCR, NSFR, and Basel III.

 Practical Applications and Future Trends

Module 7- Practical Applications

  - Case studies in liquidity risk management: Analysis of successful and unsuccessful strategies.

  - Developing and implementing a contingency funding plan: Best practices and common pitfalls.

  - Fund Transfer Pricing (FTP) systems and their role in liquidity management.

  - Adapting liquidity management strategies to different regulatory environments.

Module 8- Future Trends

  - Emerging trends in liquidity risk management and their implications.

  - The impact of technological innovations, such as AI and machine learning, on liquidity monitoring.

  - The evolving regulatory landscape: Basel IV and beyond.

  - Preparing for future liquidity crises: Strategies for resilience and sustainability.

Program Details

- Duration: 20 hours, delivered over 4-5 days 

- Delivery Mode: Online/Onsite.

- Materials: Course slides, case studies, supplementary reading materials, and regulatory guidelines.

- Certification: Participants who complete the course will receive the Certified Liquidity Risk Professional (CLRP) certificate.

- Assessment: Continuous assessment through quizzes, case studies, and a final project.

This program is designed to give participants a deep understanding of liquidity risk and the practical skills necessary to manage and mitigate these risks in today’s complex financial environment.