Liquidity Risk Management – Be prepared for the next crisis!

Liquidity Risk Management – Be prepared for the next crisis!

  1. Bernhard, can you tell the Center for Financial Professionals about yourself and your experience within the industry?

I am with zeb and working in the banking industry for almost ten years.  I am a Senior Manager in the skill base Finance and Risk and I am supporting projects with focus on risk, treasury & alm and regulatory reporting. Since 2012 I have supported projects in the area of liquidity risk management implementing solutions as a project leader. Currently, I am working on a project for the implementation of an intraday liquidity risk management solution.

  1. How can the overview of regulatory requirements and challenges assist liquidity managers for the next potential crisis?

Regulatory requirements should be looked at the bare minimum and institutions should aim for more. However, it is very important to be aware of upcoming regulatory requirements or changes and to simulate those requirements for the specific situation of the institution.  Besides fulfilling regulatory limits (e.g. LCR and NSFR) the past has shown that implementing new or changed requirements requires sufficient time and resources. Waiting too long usually ends up with sort of interim solutions and finally with inefficiencies and ineffectiveness.

  1. Can you provide some examples of thread scenarios liquidity risk?

Potential thread scenarios for credit institutions can be clustered in two dimensions:

(1) Challenging business environment:

  • Pressure to use specific forms of funding due to requirements as NSFR, MREL
  • Fierce competition for customer deposits to generate rather stable funding
  • Threat of disruption by FinTechs as non-regulated competitors

(2) Macroeconomic risk factors:

  • Unprecedented levels of central bank dependency – currently ECB keeps the euro zone “alive” flooding the market with liquidity. A change of the current policy might tremendously influence the banking sector and the liquidity situation.
  • Inevitable increase in ECB interested rates threatens to deteriorate liquidity buffers and trigger credit risk
  • Potential return of the euro/ banking crisis as e.g. Banca Monte dei Paschi di Siena and possible Frexit showcased
  • Repeated shocks and uncertainty on financial markets as unexpected events demonstrate that turmoil on financial markets can emerge within days (Brexit, etc.)
  1. Please provide some examples of holistic liquidity risk management solutions?

A holistic liquidity risk management approach can be characterized in terms of a sound and integrated target operating model for liquidity risk management. In order to simplify in that matter, following three dimensions are of importance:

  • Stronger integration of liquidity risk management across divisions
  • Stronger focus on functions rather than risk types to be reflected in organizational design
  • Specialization, standardization and automation introduce new requirements for people and skills


  • Integration and bundling of related processes enable leveraging of synergies
  • Higher specialization via focus on core responsibilities and retraction form non-core activities
  • Streamlined process flow through process standardization and automation


  • Integration requires holistic data management and harmonized processes and terminology
  • Automation requires sufficient data quality and adequate IT infrastructure
  • “Single source of truth“ as prerequisite for integration and consistent decision making
  1. How do you see the Liquidity Risk management evolving over the next 6-12 months?

Liquidity Risk Management will be a major topic for at least the next 5 years. In the next year on the one hand credit institution will face new or changed regulatory requirements (e.g. intraday liquidity risk, additional monitoring metrics, update LCR) to be implemented, on the other hand the credit institutions will be regularly confronted with on-site pillar 2 (SREP) audits by the supervisor. Our experiences have shown that those audits result in extensive finding lists. Even more importantly, liquidity will be eyed cautiously from market participants.

It is obvious that somehow all components of a liquidity risk management framework are available in banks. At the same time we can observe that all of those components are not yet fully integrated. This in combination with further automation in order to reduce inefficiencies will also keep the banks busy.