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Changes In liquidity risk management over the last decade in the EU

Written By Albert Barkley on Friday, October 19, 2018 | 8:47 PM

Nowadays, there is a competitive environment within the different businesses. The next generation of change management is known as liquidity risk management. If you want to robust liquidity risk management within an organization, then you will have to follow four essential principles. First of all, you should have to identify the liquidity risks. Secondly, you will have to monitor and control the liquidity. Thirdly, you will have to conduct scheduled stress tests. Fourthly, you will have to prepare a contingency plan. There are a lot of changes are occurring in liquidity risk management over the last decade. If you don’t have enough idea about these changes, then you can get help from experts in academic writing services. The changes in liquidity risk management over the last decade in the EU are explained below; 

1) Identify liquidity risks early

It is a fact that there are several branches of a bank or a big institute. Therefore, if the liquidity deficit occurs in one branch, then it will affect the whole institute. That’s why it is necessary for these institutions and banks to prepare a rigorous process for the identification of liquidity risk. One can easily identify the liquidity risk early by taking an analysis of the hypothetical situations and by maintaining the liquid assets by getting an idea about the possible shortfall.

2) Monitor and control liquidity regularly

After clearly identifying the liquidity risk, the next step is to monitor and control it. The best way to control and monitor the liquidity risk within a bank is to follow some indicators and metrics. In these indicators and metrics, first of all, you should get an idea about global liquidity indicators. Secondly, you should try to get an idea about the indicators that are business-specific. Thirdly, you should try to forecast the advanced flow of cash. At last, never forget about all the ratios that are necessary about relevant regulatory.

3) Conduct scheduled stress tests

It is a fact that there may occur a sudden shortfall of cash within a bank. Under such a situation, you should devise a specific strategy to meet this shortfall. For this reason, a bank should conduct scheduled stress tests. In these tests, first of all, there come the strains that are institution specific. Secondly, there come all the individual variables that are relevant to the market-wide stress. Thirdly, there come all the combined variables of the market-wide stress.

4) Create a contingency plan

After getting the results of all the stress tests, you will be in a better position to adjust your liquidity risk management strategies. The best way to overcome the liquidity shortfall in the various situations is to follow contingency funding plan. A robust CFP has four main points. First of all, you will have to prepare a clear outline of the policies. Secondly, you will have to create a line of responsibilities. Thirdly, you will have to establish a procedure for the escalation. At last, you will have to update and test this plan on the regular basis.

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