The Liquidity Risk Management Guide -- Contents -- Preface -- List of Figures -- 1 Introduction -- 1.1 The importance of an overarching liquidity risk management framework -- 1.2 The '6 Step Framework' -- 1.3 The structure of the book -- 2 Primer in Banking -- 2.1 Risk in banking -- 2.1.1 Managing the risk -- 2.1.2 The bank's balance sheet -- 3 The ALM Function - The Framework on Top of Liquidity Management -- 3.1 ALM within risk, finance and the businesses -- 3.1.1 Centralization versus decentralization -- 3.1.2 Accounting and ALM -- 3.2 The Asset-Liability Committee (ALCO) -- 3.3 Areas covered by ALCO -- 3.3.1 Interest rate risk management -- 3.3.2 Liquidity risk management -- 3.3.3 Capital reporting and management -- 3.3.4 Setting or recommending risk limits -- 3.4 Enhanced role of the ALM unit -- 4 Liquidity - Background and Key Concepts -- 4.1 Definitions and more definitions -- 4.1.1 Liquidity - definition -- 4.1.2 Liquidity risk -- 4.2 The liquidity gap -- 4.3 The timing factor of liquidity risk: tactical, structural and contingent -- 4.4 It's all about the 'L' word -- 4.5 Liquidity, solvency and capital -- 4.6 Liquidity from a macroeconomic perspective - the singular case of contagion risk and asymmetric information -- 5 The Appropriate Liquidity Framework - Introduction to the '6 Step Framework' -- 5.1 Setting the stage - from policy to a practical framework -- 5.2 The heightened regulatory focus on liquidity -- 5.3 Recommended liquidity risk management framework - The '6 Step Framework' -- 6 Step I: Sources of Liquidity Risk -- 6.1 The 10 Sources of Liquidity Risk -- 6.1.1 Definition of retail and wholesale liabilities -- 6.1.2 Wholesale funding risk -- 6.1.3 Retail funding risk -- 6.1.4 Intraday liquidity risk -- 6.1.5 Intragroup liquidity risk -- 6.1.6 Off-balance sheet liquidity risk -- 6.1.7 Cross-currency liquidity risk.

6.1.8 Funding cost risk -- 6.1.9 Asset risk -- 6.1.10 Funding concentration risk -- 6.1.11 Correlation and contagion risk -- 7 Step II: Risk Appetite -- 7.1 The risk appetite statement -- 7.1.1 Eggs, omelettes and a free lunch in the Board room -- 7.2 Drawing up a risk appetite statement -- 7.2.1 Risk appetite set at the appropriate level -- 7.2.2 Liquidity risk statement - tolerance limit approach -- 7.2.3 Liquidity risk statement - survival time period or scenario-based approach -- 7.3 The liquidity reserve -- 7.3.1 A liquidity reserve or a liquidity buffer? -- 7.3.2 How to review the risk appetite? -- 8 Step III: Governance and High-Level Policy -- 8.1 The role of the Board of directors -- 8.2 The role of senior management -- 8.2.1 First down then up again -- 8.3 High-level liquidity policies and strategies -- 8.4 Liquidity policy -- 8.5 Funding strategy -- 8.5.1 Examination of the business strategy/plan requirements -- 8.5.2 Assessment of funding sources and their attractiveness -- 8.5.3 Medium- and longer-term funding plans -- 8.6 Funds transfer pricing -- 8.6.1 Funds transfer pricing in a nutshell -- 8.6.2 The FTP principles and objectives -- 8.6.3 Construction of an FTP model -- 8.6.4 The FTP method in two steps -- 8.6.5 The pooled (average) cost method -- 8.6.6 The matched funding method -- 8.6.7 Funds transfer pricing in application -- 9 Step IV: The Quantitative Framework -- 9.1 Different ways to measure liquidity -- 9.1.1 Balance sheet analysis -- 9.1.2 Cash flow analysis -- 10 Step V: Stress Testing and the Contingency Funding Plan -- 10.1 Stress testing - the heart of the liquidity framework -- 10.1.1 How banks perform their stress tests -- 10.1.2 Where stress tests failed during the financial crises -- 10.1.3 The principles of stress testing -- 10.1.4 Stress testing within the '6 Step Framework' -- 10.1.5 Picking the model.

10.1.6 The limitation of VaR for liquidity risk stress testing -- 10.1.7 The deterministic 'what if' approach -- 10.1.8 Setting of the deterministic scenario -- 10.1.9 Choice of severity -- 10.1.10 Choice of time horizon -- 10.1.11 Scenario stress testing, step by step -- 10.1.12 Define the scenarios -- 10.1.13 Playing out the scenario -- 10.1.14 Analysing the outcome -- 10.2 Final note on scenario stress testing -- 10.2.1 Reverse stress testing -- 10.3 Contingency funding plan (CFP) - the SPADE of the liquidity framework -- 10.3.1 The regulatory requirement -- 10.3.2 Why banks need a CFP -- 10.3.3 The CFP process -- 10.3.4 Spotting the risk - triggers and early warning indicators -- 10.3.5 Assessing the risk and alert level - the boy who cried wolf -- 10.3.6 Decisions and action plans -- 10.3.7 Execution -- 11 Step VI: Reporting and Management Information -- 11.1 Internal controls and internal audit processes -- 12 Basel III: The New Global Framework -- 12.1 Basel III - beyond the buzzwords -- 12.1.1 The Basel Committee on Banking Supervision (BCBS) -- 12.1.2 Short summary of the regulatory framework leading up to Basel III -- 12.1.3 Basel III -- 12.1.4 Capital Requirements Directive (CRD) and the single rulebook -- 12.2 The Basel III liquidity ratios -- 12.3 The liquidity coverage ratio (LCR) -- 12.3.1 Challenges the LCR Will Bring to the liquidity framework -- 12.3.2 The Basel III definitions and stress assumptions -- 12.3.3 LCR common disclosure template -- 12.4 The net stable funding ratio (NSFR) -- Bibliography -- Index.