An Enhanced Liquidity Risk Management Framework for Banks

Basel III emphasizes the elevated importance of liquidity risk management. As per the regulations, most of the requirements are articulated around a set of qualitative and quantitative requirements to effectively monitor and proactively manage a financial institution’s liquidity risk profile.

This white paper discusses how institutions can meet the regulatory requirements on liquidity risk management by enhancing their liquidity risk analytics, funds transfer pricing methodologies, liquidity stress testing frameworks, and enterprise risk management stages.

The paper shows the advantages of including internal behavioural models into an institution’s liquidity risk management practices to enhance returns and exploit competitive advantages related to their balance sheet composition, funding structure, and business model.