Card Set Information

2012-05-09 16:25:35

Report on the Life Liquidity Working Group
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  1. Liquidity
    • ability of a company to meet expected and unexpected demands for cash, while suffering minimal losses
    • depends on both types of assets & liabilities
  2. Source of liquidity risk
    • cr rating downgrade
    • negative publicity
    • deterioration of economy
    • new of problems of other cpies in similar LOBs
  3. Company specific sources of liquidity risk
    • small group of agents / brokers control large % of bk
    • small cpy: less funding access
    • large cpy: mkt can't handle large liquidation volume
    • unpredictable deferrable demands on cash
    • lack of diversity (A / L)
  4. 3 levels of liquidity mgt
    • day to day cash mgt: ST liq needs
    • ongoing / intermediate term: 6-24 mths, involves (1) restructuring pf (2) selling +/- (3) diversity (4) chg in strategy
    • stress liquidity mgt: cat risk
  5. Stress liquidity mgt process
    • product design vs pf strategy
    • monitoring
    • preparedness to act
  6. Available sources of liquidity
    • asset sales: should have priority order. Some liquid assets may become illiquid in stress scenarios
    • asset securitization
    • borrowing: must pre-establish durable, ever-green cr from an issuer w a high cr rating
    • selling add'l business: unless severe stress
  7. Risk reduction techniques
    • CF match
    • diversify A / L
    • ladder liabilities maturity
    • back surplus / capital w liquid assets
    • establish durable line of cr
    • issue commercial paper
    • use repurchase agreements (-) usually tie up liquid assets
  8. Tools to measure stress liquidity exposure
    • CF modeling: project known CF & model shock events
    • liquidity ratios: liquidity adjustment haircut is diff btwn bk & fair value & estimated liquidation cost