KRM Liquidity Risk Solutions
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| Around the world, bank assets are growing faster than
liabilities and capital. This has been the case for most of the past decade,
with the exception of 2001 when funds flowed out of equities. The result is
increasing reliance on borrowed funds. At the same time, off balance
commitments are at record levels. Liquidity risk is rising.
Unsurprisingly, regulatory attention to bank liquidity is rising as well.
The U.K. FSA as well as other developed countries have proposed new
regulations. And, the new Basel II capital guidelines put risk in pillar II
where it will be the focus of close scrutiny from examiners.
Have your liquidity risk management capabilities risen to meet today's
higher risk levels?
Kamakura offers tools for best practice liquidity risk exposure
measurement, regulatory compliance and Basel II guidelines.
Cash Flow Projections
Kamakura permits users to:
- Project cash flows for up to 999 future time periods.
- Mix and match time periods as short as 1 day or as long as you
wish.
- Reflect all cash flows from contractual maturities.
- Reflect cash flows from embedded options that change when
prevailing rates change.
- Reflect changes in roll-over and new business.
- Incorporate cash flows from off-balance sheet commitments.
- Report for each line item or in summary.
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Scenario Based Projection Sets and Stress
Testing
Kamakura permits users to:
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Incorporate the impact of cash flow
changes driven by changes in prevailing interest rates – both from
floating rate instruments and optional principal cash flows.
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Employ different business assumptions as
appropriate for each liquidity scenario.
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Incorporate different cash flow
assumptions for off-balance sheet commitments for each scenario.
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Create identified assumption sets for
easy re-running of scenarios.
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BIS Guidelines for Liquidity Risk Limit and Targets
Banks should analyze the likely impact of different stress scenarios on
their liquidity position and set their limits accordingly. Limits should be
appropriate to the size, complexity and financial condition of the bank.
Management should define the specific procedures and approvals necessary for
exceptions to policies and limits.
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Cash Flow Projection Assumptions
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BIS Guidelines for Assumptions Used in Liquidity Evaluations
"Assumptions should be set out clearly so that management can
evaluate the validity and consistency of key assumptions and
understand the implications of various stress scenarios." |
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KRM allows users to
"drill down" into details to exam the impact of specific assumptions. |
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Compliance with BIS Guidelines
Kamakura Solutions Support BIS Guidelines for Liquidity
Limits and TargetsKamakura users can meet or exceed the standards set forth in the February
2000 Bank for International Settlements Guidance:
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BIS Guidelines Require Stress Testing
"The liquidity strategy should set out the general approach the bank will
have to liquidity, including various quantitative and qualitative targets.
This strategy should address the bank's goal of protecting financial
strength and the ability to withstand stressful events in the marketplace."
Source: paragraph 7, Sound Practices for Managing
Liquidity in Banking Organizations Basel Committee on Banking Supervision,
Basel February 2000
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Modeling Efficiency
Kamakura's Liquidity Risk solution is closely linked to our interest rate
risk modeling capability. As a result, users benefit from common data
inputs, common assumptions for rate sensitive cash flows and common business
assumptions.
Further details on the Kamakura's Liquidity Risk solutions can be
obtained by contacting Kamakura at
sales@kamakuraco.com or
tel. 1-808-791-9888.
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