Page 38

Maturity mismatch

77

(175) (430) (570) (1,295) (134)

Mismatch

Figure 9.9

Liability

Asset

Analysis:

Purpose: Measure:

52

277

h as

265

11 657

0

657

742

0

742

5 years 5 years+

(858)

4,533

3,675

TOTAL

N

FR

C

l na tio its itu pos de

st

In

le B gib S EC Eli AB er th BS A

O

p

or

C

s

LG

e

op

Pr

Long-term

er m its ) to os us ep 90% ( d

C

s an

Lo

rty

Illiquid

Liquidity policy statement: basic framework

s

D

C

er m to sits us po %) de (10

FI

Short-term

nk sits Ba po de

s

ilt

G

s

To measure the asset liquidity and likely stickiness of liabilities. Each asset/liability type (per COA) is rated based on size of holding, contractual maturity, behavioural stickiness, yield, cost to liquidate. A detailed understanding of the attributes and behaviour of the bank’s balance sheet allows ALCO to make better informed strategic choices.

Liquid

C

1,563

276

3 years

Asset/liability liquidity ladder

838

129

813

143

980

268

Outflows

273

805

1 month 3 months 6 months

8 day

383

Sight

Inflows

1 year

To measure the net funding requirement (or surplus) per maturity bucket. This is the main regulatory requirement for liquidity measurement. Measures the net cash flow for each maturity bucket. In the short term, when commitments (cash outflows) exceed liquid assets (cash inflows), the money markets desk needs to raise additional funding. In the longer term, structural imbalances, ALCO will determine the appropriate funding strategy.

Maturity mismatch ladder

Measure: Analysis:

Purpose:

Executive summary liquidity risk reporting template

Customer deposits

EUR

GBP

USD

=

Funding concentration

Lending

FX mismatch

(450)

EUR GBP

956 (150)

USD

Currency Mismatch

Group deposits

Inter-bank deposits

Customer deposits

Group deposits

Inter-bank deposits

1 month

Customer deposits

Group deposits

Inter-bank deposits

1 year

To measure the relative concentration of each funding source. % concentration of each funding source per maturity bucket. Analysing funding concentration risk allows the bank to develop effective diversification strategies.

GBP

EUR

Sight – 8 days

Purpose: Measure: Analysis:

USD

FX mismatch To measure the gap between funding and lending in each currency. Funding minus lending, per currency. By measuring FX mismatch, the bank gains an understanding of its exposure to the risk that FX swap markets become illiquid which could force a large open FX position or make it difficult to meet commitments in a particular currency.

Funding

Purpose: Measure: Analysis:

278 AN INTRODUCTION TO BANKING, 2 EDITION ............................................................ nd

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Introduction to Banking 2e Choudhry sample chapter minibook  

Sample chapters of Moorad Choudhry's widely adopted textbook An Introduction to Banking Second Edition. To order your copy visit www.wiley....

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