Measurement, Analysis &
Management
of
LIQUIDITY RISK
ALM 99 Paris,
Pre-Seminar, 27 Sep 1999
Liquidity Risk
Intro
9h00 - 9h!5
Dr. Robert E. Fiedler
Deutsche Bank AG
Liquidity Risk
10:45
1h30m
11:15
11:45
12:15
Joe J McLaughlin (JJM)
Gerard Neber (GN)
Barometer (BT)
60m
45m
Break
30m
30m
30m
30m
12:45
ce
pt
Intro & Overview (DB)
Co
n
10:00
Robert E Fiedler (REF)
Jim Moloney (JM)
From CCF to ElaR
Kevin Kish (KK)
Incorporating Contingent Claims
Arne Funkemeyer (AF)
Backtesting
Timetable
R
ef
i
Co ned
nc
ep
t
1h15m
09:00
Lunch
1h30m
16:00
45m
60m
17:30
Ian Gilmour (IG)
Maz Khan (MK)
30m
ow
H
IT
we
do
Break
30m
45m
16:45 15m
17:00
Liquidity Reserves
Jan Willing (JW)
Valuation of NoMA/L
REF / JJM
Fusion of Concepts
Robert E Fiedler (REF)
Outlook & Summary
ok
15:30
Heinz Kroebel (HK)
ut
lo
14:30
60m
O
1h45m
13:45
Liquidity Risk
it
10:45
1h30m
11:15
11:45
12:15
Joe J McLaughlin (JJM)
Gerard Neber (GN)
Barometer (BT)
60m
45m
Break
30m
30m
30m
30m
12:45
ce
pt
Intro & Overview (DB)
Co
n
10:00
Robert E Fiedler (REF)
Jim Moloney (JM)
From CCF to ElaR
Kevin Kish (KK)
Incorporating Contingent Claims
Arne Funkemeyer (AF)
Backtesting
Timetable
R
ef
i
Co ned
nc
ep
t
1h15m
09:00
Lunch
1h30m
16:00
45m
60m
17:30
Ian Gilmour (IG)
Maz Khan (MK)
30m
ow
H
IT
we
do
Break
30m
45m
16:45 15m
17:00
Liquidity Reserves
Jan Willing (JW)
Valuation of NoMA/L
REF / JJM
Fusion of Concepts
Robert E Fiedler (REF)
Outlook & Summary
ok
15:30
Heinz Kroebel (HK)
ut
lo
14:30
60m
O
1h45m
13:45
Liquidity Risk
it
10:45
1h30m
11:15
11:45
12:15
Joe J McLaughlin (JJM)
Gerard Neber (GN)
Barometer (BT)
60m
45m
Break
30m
30m
30m
30m
12:45
ce
pt
Intro & Overview (DB)
Co
n
10:00
Robert E Fiedler (REF)
Jim Moloney (JM)
From CCF to ElaR
Kevin Kish (KK)
Incorporating Contingent Claims
Arne Funkemeyer (AF)
Backtesting
Timetable
R
ef
i
Co ned
nc
ep
t
1h15m
09:00
Lunch
1h30m
16:00
45m
60m
17:30
Ian Gilmour (IG)
Maz Khan (MK)
30m
ow
H
IT
we
do
Break
30m
45m
16:45 15m
17:00
Liquidity Reserves
Jan Willing (JW)
Valuation of NoMA/L
REF / JJM
Fusion of Concepts
Robert E Fiedler (REF)
Outlook & Summary
ok
15:30
Heinz Kroebel (HK)
ut
lo
14:30
60m
O
1h45m
13:45
Liquidity Risk
it
10:45
1h30m
11:15
11:45
12:15
Joe J McLaughlin (JJM)
Gerard Neber (GN)
Barometer (BT)
60m
45m
Break
30m
30m
30m
30m
12:45
ce
pt
Intro & Overview (DB)
Co
n
10:00
Robert E Fiedler (REF)
Jim Moloney (JM)
From CCF to ElaR
Kevin Kish (KK)
Incorporating Contingent Claims
Arne Funkemeyer (AF)
Backtesting
Timetable
R
ef
i
Co ned
nc
ep
t
1h15m
09:00
Lunch
1h30m
16:00
45m
60m
17:30
Ian Gilmour (IG)
Maz Khan (MK)
30m
ow
H
IT
we
do
Break
30m
45m
16:45 15m
17:00
Liquidity Reserves
Jan Willing (JW)
Valuation of NoMA/L
REF / JJM
Fusion of Concepts
Robert E Fiedler (REF)
Outlook & Summary
ok
15:30
Heinz Kroebel (HK)
ut
lo
14:30
60m
O
1h45m
13:45
Liquidity Risk
it
10:45
1h30m
11:15
11:45
12:15
Joe J McLaughlin (JJM)
Gerard Neber (GN)
Barometer (BT)
60m
45m
Break
30m
30m
30m
30m
12:45
ce
pt
Intro & Overview (DB)
Co
n
10:00
Robert E Fiedler (REF)
Jim Moloney (JM)
From CCF to ElaR
Kevin Kish (KK)
Incorporating Contingent Claims
Arne Funkemeyer (AF)
Backtesting
Timetable
R
ef
i
Co ned
nc
ep
t
1h15m
09:00
Lunch
1h30m
16:00
45m
60m
17:30
Ian Gilmour (IG)
Maz Khan (MK)
30m
ow
H
IT
we
do
Break
30m
45m
16:45 15m
17:00
Liquidity Reserves
Jan Willing (JW)
Valuation of NoMA/L
REF / JJM
Fusion of Concepts
Robert E Fiedler (REF)
Outlook & Summary
ok
15:30
Heinz Kroebel (HK)
ut
lo
14:30
60m
O
1h45m
13:45
Liquidity Risk
it
10:45
1h30m
11:15
11:45
12:15
Joe J McLaughlin (JJM)
Gerard Neber (GN)
Barometer (BT)
60m
45m
Break
30m
30m
30m
30m
12:45
ce
pt
Intro & Overview (DB)
Co
n
10:00
Robert E Fiedler (REF)
Jim Moloney (JM)
From CCF to ElaR
Kevin Kish (KK)
Incorporating Contingent Claims
Arne Funkemeyer (AF)
Backtesting
Timetable
R
ef
i
Co ned
nc
ep
t
1h15m
09:00
Lunch
1h30m
16:00
45m
60m
17:30
Ian Gilmour (IG)
Maz Khan (MK)
30m
ow
H
IT
we
do
Break
30m
45m
16:45 15m
17:00
Liquidity Reserves
Jan Willing (JW)
Valuation of NoMA/L
REF / JJM
Fusion of Concepts
Robert E Fiedler (REF)
Outlook & Summary
ok
15:30
Heinz Kroebel (HK)
ut
lo
14:30
60m
O
1h45m
13:45
Liquidity Risk
it
10:45
1h30m
11:15
11:45
12:15
Joe J McLaughlin (JJM)
Gerard Neber (GN)
Barometer (BT)
60m
45m
Break
30m
30m
30m
30m
12:45
ce
pt
Intro & Overview (DB)
Co
n
10:00
Robert E Fiedler (REF)
Jim Moloney (JM)
From CCF to ElaR
Kevin Kish (KK)
Incorporating Contingent Claims
Arne Funkemeyer (AF)
Backtesting
Timetable
R
ef
i
Co ned
nc
ep
t
1h15m
09:00
Lunch
1h30m
16:00
45m
60m
17:30
Ian Gilmour (IG)
Maz Khan (MK)
30m
ow
H
IT
we
do
Break
30m
45m
16:45 15m
17:00
Liquidity Reserves
Jan Willing (JW)
Valuation of NoMA/L
REF / JJM
Fusion of Concepts
Robert E Fiedler (REF)
Outlook & Summary
ok
15:30
Heinz Kroebel (HK)
ut
lo
14:30
60m
O
1h45m
13:45
Liquidity Risk
it
10:45
1h30m
11:15
11:45
12:15
Joe J McLaughlin (JJM)
Gerard Neber (GN)
Barometer (BT)
60m
45m
Break
30m
30m
30m
30m
12:45
ce
pt
Intro & Overview (DB)
Co
n
10:00
Robert E Fiedler (REF)
Jim Moloney (JM)
From CCF to ElaR
Kevin Kish (KK)
Incorporating Contingent Claims
Arne Funkemeyer (AF)
Backtesting
Timetable
R
ef
i
Co ned
nc
ep
t
1h15m
09:00
Lunch
1h30m
16:00
45m
60m
17:30
Ian Gilmour (IG)
Maz Khan (MK)
30m
ow
H
IT
we
do
Break
30m
45m
16:45 15m
17:00
Liquidity Reserves
Jan Willing (JW)
Valuation of NoMA/L
REF / JJM
Fusion of Concepts
Robert E Fiedler (REF)
Outlook & Summary
ok
15:30
Heinz Kroebel (HK)
ut
lo
14:30
60m
O
1h45m
13:45
Liquidity Risk
it
10:45
1h30m
11:15
11:45
12:15
Joe J McLaughlin (JJM)
Gerard Neber (GN)
Barometer (BT)
60m
45m
Break
30m
30m
30m
30m
12:45
ce
pt
Intro & Overview (DB)
Co
n
10:00
Robert E Fiedler (REF)
Jim Moloney (JM)
From CCF to ElaR
Kevin Kish (KK)
Incorporating Contingent Claims
Arne Funkemeyer (AF)
Backtesting
Timetable
R
ef
i
Co ned
nc
ep
t
1h15m
09:00
Lunch
1h30m
16:00
45m
60m
17:30
Ian Gilmour (IG)
Maz Khan (MK)
30m
ow
H
IT
we
do
Break
30m
45m
16:45 15m
17:00
Liquidity Reserves
Jan Willing (JW)
Valuation of NoMA/L
REF / JJM
Fusion of Concepts
Robert E Fiedler (REF)
Outlook & Summary
ok
15:30
Heinz Kroebel (HK)
ut
lo
14:30
60m
O
1h45m
13:45
Liquidity Risk
it
10:45
1h30m
11:15
11:45
12:15
Joe J McLaughlin (JJM)
Gerard Neber (GN)
Barometer (BT)
60m
45m
Break
30m
30m
30m
30m
12:45
ce
pt
Intro & Overview (DB)
Co
n
10:00
Robert E Fiedler (REF)
Jim Moloney (JM)
From CCF to ElaR
Kevin Kish (KK)
Incorporating Contingent Claims
Arne Funkemeyer (AF)
Backtesting
Timetable
R
ef
i
Co ned
nc
ep
t
1h15m
09:00
Lunch
1h30m
16:00
45m
60m
17:30
Ian Gilmour (IG)
Maz Khan (MK)
30m
ow
H
IT
we
do
Break
30m
45m
16:45 15m
17:00
Liquidity Reserves
Jan Willing (JW)
Valuation of NoMA/L
REF / JJM
Fusion of Concepts
Robert E Fiedler (REF)
Outlook & Summary
ok
15:30
Heinz Kroebel (HK)
ut
lo
14:30
60m
O
1h45m
13:45
Liquidity Risk
it
10:45
1h30m
11:15
11:45
12:15
Joe J McLaughlin (JJM)
Gerard Neber (GN)
Barometer (BT)
60m
45m
Break
30m
30m
30m
30m
12:45
ce
pt
Intro & Overview (DB)
Co
n
10:00
Robert E Fiedler (REF)
Jim Moloney (JM)
From CCF to ElaR
Kevin Kish (KK)
Incorporating Contingent Claims
Arne Funkemeyer (AF)
Backtesting
Timetable
R
ef
i
Co ned
nc
ep
t
1h15m
09:00
Lunch
1h30m
16:00
45m
60m
17:30
Ian Gilmour (IG)
Maz Khan (MK)
30m
ow
H
IT
we
do
Break
30m
45m
16:45 15m
17:00
Liquidity Reserves
Jan Willing (JW)
Valuation of NoMA/L
REF / JJM
Fusion of Concepts
Robert E Fiedler (REF)
Outlook & Summary
ok
15:30
Heinz Kroebel (HK)
ut
lo
14:30
60m
O
1h45m
13:45
Liquidity Risk
it
10:45
1h30m
11:15
11:45
12:15
Joe J McLaughlin (JJM)
Gerard Neber (GN)
Barometer (BT)
60m
45m
Break
30m
30m
30m
30m
12:45
ce
pt
Intro & Overview (DB)
Co
n
10:00
Robert E Fiedler (REF)
Jim Moloney (JM)
From CCF to ElaR
Kevin Kish (KK)
Incorporating Contingent Claims
Arne Funkemeyer (AF)
Backtesting
Timetable
R
ef
i
Co ned
nc
ep
t
1h15m
09:00
Lunch
1h30m
16:00
45m
60m
17:30
Ian Gilmour (IG)
Maz Khan (MK)
30m
ow
H
IT
we
do
Break
30m
45m
16:45 15m
17:00
Liquidity Reserves
Jan Willing (JW)
Valuation of NoMA/L
REF / JJM
Fusion of Concepts
Robert E Fiedler (REF)
Outlook & Summary
ok
15:30
Heinz Kroebel (HK)
ut
lo
14:30
60m
O
1h45m
13:45
Liquidity Risk
it
10:45
1h30m
11:15
11:45
12:15
Joe J McLaughlin (JJM)
Gerard Neber (GN)
Barometer (BT)
60m
45m
Break
30m
30m
30m
30m
12:45
ce
pt
Intro & Overview (DB)
Co
n
10:00
Robert E Fiedler (REF)
Jim Moloney (JM)
From CCF to ElaR
Kevin Kish (KK)
Incorporating Contingent Claims
Arne Funkemeyer (AF)
Backtesting
Timetable
R
ef
i
Co ned
nc
ep
t
1h15m
09:00
Lunch
1h30m
16:00
45m
60m
17:30
Ian Gilmour (IG)
Maz Khan (MK)
30m
ow
H
IT
we
do
Break
30m
45m
16:45 15m
17:00
Liquidity Reserves
Jan Willing (JW)
Valuation of NoMA/L
REF / JJM
Fusion of Concepts
Robert E Fiedler (REF)
Outlook & Summary
ok
15:30
Heinz Kroebel (HK)
ut
lo
14:30
60m
O
1h45m
13:45
Liquidity Risk
it
10:45
1h30m
11:15
11:45
12:15
Joe J McLaughlin (JJM)
Gerard Neber (GN)
Barometer (BT)
60m
45m
Break
30m
30m
30m
30m
12:45
ce
pt
Intro & Overview (DB)
Co
n
10:00
Robert E Fiedler (REF)
Jim Moloney (JM)
From CCF to ElaR
Kevin Kish (KK)
Incorporating Contingent Claims
Arne Funkemeyer (AF)
Backtesting
Timetable
R
ef
i
Co ned
nc
ep
t
1h15m
09:00
Lunch
1h30m
16:00
45m
60m
17:30
Ian Gilmour (IG)
Maz Khan (MK)
30m
ow
H
IT
we
do
Break
30m
45m
16:45 15m
17:00
Liquidity Reserves
Jan Willing (JW)
Valuation of NoMA/L
REF / JJM
Fusion of Concepts
Robert E Fiedler (REF)
Outlook & Summary
ok
15:30
Heinz Kroebel (HK)
ut
lo
14:30
60m
O
1h45m
13:45
Liquidity Risk
it
10:45
1h30m
11:15
11:45
12:15
Joe J McLaughlin (JJM)
Gerard Neber (GN)
Barometer (BT)
60m
45m
Break
30m
30m
30m
30m
12:45
ce
pt
Intro & Overview (DB)
Co
n
10:00
Robert E Fiedler (REF)
Jim Moloney (JM)
From CCF to ElaR
Kevin Kish (KK)
Incorporating Contingent Claims
Arne Funkemeyer (AF)
Backtesting
Timetable
R
ef
i
Co ned
nc
ep
t
1h15m
09:00
Lunch
1h30m
16:00
45m
60m
17:30
Ian Gilmour (IG)
Maz Khan (MK)
30m
ow
H
IT
we
do
Break
30m
45m
16:45 15m
17:00
Liquidity Reserves
Jan Willing (JW)
Valuation of NoMA/L
REF / JJM
Fusion of Concepts
Robert E Fiedler (REF)
Outlook & Summary
ok
15:30
Heinz Kroebel (HK)
ut
lo
14:30
60m
O
1h45m
13:45
Liquidity Risk
it
10:45
1h30m
11:15
11:45
12:15
Joe J McLaughlin (JJM)
Gerard Neber (GN)
Barometer (BT)
60m
45m
Break
30m
30m
30m
30m
12:45
ce
pt
Intro & Overview (DB)
Co
n
10:00
Robert E Fiedler (REF)
Jim Moloney (JM)
From CCF to ElaR
Kevin Kish (KK)
Incorporating Contingent Claims
Arne Funkemeyer (AF)
Backtesting
Timetable
R
ef
i
Co ned
nc
ep
t
1h15m
09:00
Lunch
1h30m
16:00
45m
60m
17:30
Ian Gilmour (IG)
Maz Khan (MK)
30m
ow
H
IT
we
do
Break
30m
45m
16:45 15m
17:00
Liquidity Reserves
Jan Willing (JW)
Valuation of NoMA/L
REF / JJM
Fusion of Concepts
Robert E Fiedler (REF)
Outlook & Summary
ok
15:30
Heinz Kroebel (HK)
ut
lo
14:30
60m
O
1h45m
13:45
Liquidity Risk
it
10:45
1h30m
11:15
11:45
12:15
Joe J McLaughlin (JJM)
Gerard Neber (GN)
Barometer (BT)
60m
45m
Break
30m
30m
30m
30m
12:45
ce
pt
Intro & Overview (DB)
Co
n
10:00
Robert E Fiedler (REF)
Jim Moloney (JM)
From CCF to ElaR
Kevin Kish (KK)
Incorporating Contingent Claims
Arne Funkemeyer (AF)
Backtesting
Timetable
R
ef
i
Co ned
nc
ep
t
1h15m
09:00
Lunch
1h30m
16:00
45m
60m
17:30
Ian Gilmour (IG)
Maz Khan (MK)
30m
ow
H
IT
we
do
Break
30m
45m
16:45 15m
17:00
Liquidity Reserves
Jan Willing (JW)
Valuation of NoMA/L
REF / JJM
Fusion of Concepts
Robert E Fiedler (REF)
Outlook & Summary
ok
15:30
Heinz Kroebel (HK)
ut
lo
14:30
60m
O
1h45m
13:45
Liquidity Risk
it
10:45
1h30m
11:15
11:45
12:15
Joe J McLaughlin (JJM)
Gerard Neber (GN)
Barometer (BT)
60m
45m
Break
30m
30m
30m
30m
12:45
ce
pt
Intro & Overview (DB)
Co
n
10:00
Robert E Fiedler (REF)
Jim Moloney (JM)
From CCF to ElaR
Kevin Kish (KK)
Incorporating Contingent Claims
Arne Funkemeyer (AF)
Backtesting
Timetable
R
ef
i
Co ned
nc
ep
t
1h15m
09:00
Lunch
1h30m
16:00
45m
60m
17:30
Ian Gilmour (IG)
Maz Khan (MK)
30m
ow
H
IT
we
do
Break
30m
45m
16:45 15m
17:00
Liquidity Reserves
Jan Willing (JW)
Valuation of NoMA/L
REF / JJM
Fusion of Concepts
Robert E Fiedler (REF)
Outlook & Summary
ok
15:30
Heinz Kroebel (HK)
ut
lo
14:30
60m
O
1h45m
13:45
Liquidity Risk
it
10:45
1h30m
11:15
11:45
12:15
Joe J McLaughlin (JJM)
Gerard Neber (GN)
Barometer (BT)
60m
45m
Break
30m
30m
30m
30m
12:45
ce
pt
Intro & Overview (DB)
Co
n
10:00
Robert E Fiedler (REF)
Jim Moloney (JM)
From CCF to ElaR
Kevin Kish (KK)
Incorporating Contingent Claims
Arne Funkemeyer (AF)
Backtesting
Timetable
R
ef
i
Co ned
nc
ep
t
1h15m
09:00
Lunch
1h30m
16:00
45m
60m
17:30
Ian Gilmour (IG)
Maz Khan (MK)
30m
ow
H
IT
we
do
Break
30m
45m
16:45 15m
17:00
Liquidity Reserves
Jan Willing (JW)
Valuation of NoMA/L
REF / JJM
Fusion of Concepts
Robert E Fiedler (REF)
Outlook & Summary
ok
15:30
Heinz Kroebel (HK)
ut
lo
14:30
60m
O
1h45m
13:45
Liquidity Risk
it
Overview
9h15 - 9h45
Dr. Robert E. Fiedler
Deutsche Bank AG
Liquidity Risk
Overview
Why?
 What?
 How?
 Solutions
 DBs solution
Q&A

Liquidity Risk
Why ?

Rising/unstable refinancing costs:
- General downgrading trend for banks
- Emigration of classic “cheap” liabilities
- Changing money markets (Euro, Repo)

Increasing risk of large short/long cash positions:
-

Increasing clearing activities (Euro)
Imperfect redistribution of central bank funds
“Unpredictable” flows from (derivative) trading
Volatile customer decisions
Upgrading of risk management standards:
- Isolation of single risk types
- Increasing regulatory demands
- Standing in peer group
Liquidity Risk
Funding Liquidity
Solvability = ability to pay debt when due
- right time
- right currency / payment system
 Digital: To be or not to be solvent
 Probability(Staying solvent)  Liquidity
 Target:
High Liquidity
(= Low risk of insolvency)
 Problem:
Not cost-neutral
 Conclusion: Solvability is not everything

Liquidity Risk
Liquidity (Cash) Management &
Liquidity Risk Management
Successful in the past
(no past default)
Cash
Management

/
=/
Successful in the future
(no future default)
Liquidity Risk
Management
Risk = Uncertainty about future
The past is not the future
Liquidity Risk
Example: Repo-Book





Repo with Bonds
- O/N
- 85% self-funding on average (incl. Haircut)
Investment position:
100‘‘‘ EUR Bonds
Self-financing:
85‘‘‘ EUR
Rest at MM-desk:
15‘‘‘ EUR at O/N
What is the Liquidity Risk?
- Trader:
15‘‘‘ EUR (CashMgt)
- Controller:
100‘‘‘ EUR
Liquidity Risk
Anatomy of Insolvency



Insolvency := Inability to meet contractual
obligations when they fall due
Systemic:
- Central bank allocates not enough money
- Redistribution process does not work
Specific:
- Credibility shock
- Solvency doubtful
Technical:
- Excessive forward payment structure
- Uncertainty about forward payment structure
Liquidity Risk
Interest
Illiquidity
A Liquidity
Trader’s View
Rate
Conclusion:
two-sided but
not symmetrical 
We Raise Funds
We Place Funds
Ctrl Bank
Lombard
Rate
LIBOR Flat
LIBOR
- X%
Ctrl Bank
Purchase
Rate
CtrlBank
Eligible
Assets
We Sell / Repo
Intraday
Assets
Normal
Status
We Buy / Repo CtrlBank
Eligible
Intraday
Assets
Assets
Cash-Status
Liquidity Risk
Two-sided definition
Cashflow Liquidity Risk is the Risk of:
 only being able to
raise funds at rates higher than or
place funds at rates lower than
(credit ranking adjusted) market rates

not being able to raise enough funds to meet
contractual obligations (illiquidity, insolvability)

having correctly anticipated a market
development but ending up with a “wrong”
position
Liquidity Risk
10.000
Classic Approach
8.000
6.000
4.000
2.000
0
-2.000
-4.000
-6.000
-8.000
-10.000
T+1
T+2
T+3
T+4
T+5
T+6
T+7
T+14
T+21
T+28
T+35
T+42
T+49
Liquidity Risk
T+56
Classic Approach
(Liquidity Gap Analysis)
10.000
8.000
6.000
4.000
2.000
0
-2.000
Problem:
-4.000
-6.000
Contingent Cashflows
-8.000
-10.000
T+1
T+2
T+3
T+4
T+5
T+6
T+7
T+14
T+21
T+28
T+35
T+42
T+49
Liquidity Risk
T+56
Maximum Cash Outflow (MCO)




General Principle
Maximum Out / Minimum In (MCO/MCI)
Contractual Cashflows, but:
“Probabilistic Contingency Premium”
- “Some more” outflows than expected
- “Some less” inflows than expected
Liquidity Risk
Maximum Cash Outflow (MCO)
10.000
Risk
up there ?
8.000
6.000
Contingent
measure ?
4.000
2.000
0
-2.000
-4.000
-6.000
Define
-8.000
contingent
-10.000
T+1
T+2
T+3
T+4
T+5
T+6
T+7
T+14
T+21
T+28
T+35
T+42
T+49
Liquidity Risk
T+56
Stochastic Nature of Cashflows
Contractual
Dynamic
Changing
BalanceSheet
On- & OffBalanceSheet
Certain
Uncertain
Fixed Loan / Deposit
...
MarketDriven
CounterpartyDriven
IRS, FRA, Future
Non-Maturing Account
Market Rate &
Optionality
Stochastic
Variable in Time
Cashflows
and/or Amount
Liquidity Risk
Expected Cash Liquidity (ECL)
10,000
8,000
7.5
6.5
6,000
5.5
4.5
4,000
3.5
2.5
2,000
1.5
mean 
0,000
1
-2,000
-4,000
-6,000
-8,000
3
5
7
9
0.5
-0.5
11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55
-1.5
-2.5
-3.5
-4.5
-5.5
-6.5
-7.5
0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
-10,000
Liquidity Risk
Expected Cash Liquidity (ECL)
10.000
8.000
6.000
4.000
2.000
0
-2.000
-4.000
-6.000
-8.000
-10.000
T+1
T+2
T+3
T+4
T+5
T+6
T+7
T+14
T+21
T+28
T+35
T+42
T+49
Liquidity Risk
T+56
Expected Cash Liquidity (ECL)
10.000
8.000
6.000
4.000
2.000
0
-2.000
-4.000
-6.000
-8.000
-10.000
T+1
T+2
T+3
T+4
T+5
T+6
T+7
T+14
T+21
T+28
T+35
T+42
T+49
Liquidity Risk
T+56
Expected Liquidity at Risk (ELaR)
10,000
8,000
7.5
6.5
6,000
5.5
4.5
4,000
3.5
-quantile
2,000
mean 
0,000
1
-2,000
-4,000
-6,000
-8,000
3
5
7
9
2.5
1.5
0.5
-0.5
11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55
-quantile
-1.5
-2.5
-3.5
-4.5
-5.5
-6.5
-7.5
0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
-10,000
Liquidity Risk
Expected Liquidity at Risk (ELaR)
10.000
8.000
6.000
4.000
2.000
0
-2.000
-4.000
-6.000
-8.000
-10.000
T+1
T+2
T+3
T+4
T+5
T+6
T+7
T+14
T+21
T+28
T+35
T+42
T+49
Liquidity Risk
T+56
Expected Liquidity at Risk (ELaR)
10.000
8.000
6.000
4.000
2.000
0
-2.000
-4.000
-6.000
-8.000
-10.000
T+1
T+2
T+3
T+4
T+5
T+6
T+7
T+14
T+21
T+28
T+35
T+42
T+49
Liquidity Risk
T+56
“Everything should be made as
simple as possible
- but not simpler.”
Albert EINSTEIN
Liquidity Risk

Conclusion


DB developed a methodology to quantify
(Funding)Liquidity Risk
Result: global / local Liquidity Gap Analysis
- Expected Cash Liquidity – ECL
- Expected Liquidity at Risk – ELaR (analogue VaR )


Conclusion after discussions with central banks,
supervisors, industry groups other banks:
Currently the most advanced methodology.
Liquidity Risk
10:45
1h30m
11:15
11:45
12:15
Joe J McLaughlin (JJM)
Gerard Neber (GN)
Barometer (BT)
60m
45m
Break
30m
30m
30m
30m
12:45
ce
pt
Intro & Overview (DB)
Co
n
10:00
Robert E Fiedler (REF)
Jim Moloney (JM)
From CCF to ElaR
Kevin Kish (KK)
Incorporating Contingent Claims
Arne Funkemeyer (AF)
Backtesting
Timetable
R
ef
i
Co ned
nc
ep
t
1h15m
09:00
Lunch
1h30m
16:00
45m
60m
17:30
Ian Gilmour (IG)
Maz Khan (MK)
30m
ow
H
IT
we
do
Break
30m
45m
16:45 15m
17:00
Liquidity Reserves
Jan Willing (JW)
Valuation of NoMA/L
REF / JJM
Fusion of Concepts
Robert E Fiedler (REF)
Outlook & Summary
ok
15:30
Heinz Kroebel (HK)
ut
lo
14:30
60m
O
1h45m
13:45
Liquidity Risk
it