What is the liquidity risk of banks
The liquidity risk includes the following risks:
- Not being able to meet payment obligations when they are due (liquidity risk in the narrower sense).
- Not being able to obtain sufficient liquidity at the expected conditions if necessary (refinancing risk).
- Due to insufficient market depth or market disruptions, not being able to dissolve, extend or close out transactions or only with losses (market liquidity risk).
MünchenerHyp differentiates between short-term securing of solvency and medium-term structural liquidity planning.
Short-term security of solvency
The aim of ensuring solvency in the short term is to ensure that the bank is able to meet its regular payment obligations on time and in full, even in stressful situations (willingness to pay). The currently applicable regulatory requirements MaRisk and CRD IV for banks' liquidity reserves have been implemented in full.
MünchenerHyp classifies itself as a capital market-oriented institute within the meaning of MaRisk and therefore also meets the requirements of BTR 3.2.
The MaRisk differentiate between five different scenarios that have been implemented accordingly:
- Base case: Corresponds to the control case of the bank.
- Bank stress: The reputation of the institution deteriorates, for example due to high losses on the balance sheet.
- Market stress: Short-term event that affects part of the financial market. Examples of this are the terrorist attack of September 11, 2001 or the financial market / sovereign debt crisis.
- Combined stress: Simultaneous occurrence of bank and market stress.
- Combined stress without countermeasures: In scenario 5 it is assumed that it is no longer possible to obtain liquidity at all.
According to MaRisk, the liquidity requirements from scenarios 1 to 4 must be complied with for at least 30 days; scenario 5 represents the worst case for internal control purposes.
Depending on the scenario, different model assumptions were derived for all important cash flows, for example for the use of our liquidity lines or guarantees, the use of loan commitments already made or the development of collaterals. In addition, all securities were divided into different liquidity classes and derived from this which volume in the respective scenario in which period can be sold or transferred to a securities repurchase agreement in order to generate additional liquidity. Legal restrictions such as the 180-day rule from the Pfandbrief Act are always observed. The result is a daily presentation of the available liquidity over a three-year horizon in the three currencies euro, US dollar and Swiss franc. Positions in other currencies are negligible. In the stress scenarios, the limits are set over different horizons as early warning indicators for each scenario.
In addition, the Liquidity Coverage Ratio (LCR) including a forecast in accordance with CRD IV is calculated for all currencies at least once a week. It is also regularly calculated separately for all relevant currencies (currently EUR and CHF). In 2017, the rate was always well above 100 percent.
Medium-term structural liquidity planning
Structural liquidity planning serves to ensure medium-term liquidity. The legal basis for this is provided by MaRisk BTR 3 on the one hand and CRD IV on the Net Stable Funding Ratio (NSFR) on the other.
The medium-term liquidity control according to MaRisk is based on the short-term liquidity control according to MaRisk, that is, both use the same scenario definitions and modeling assumptions. Due to the longer observation period, however, other models are taken into account that are not decisive for short-term liquidity management. These are, for example, new business planning or ongoing costs such as salaries and taxes.
The medium-term liquidity planning has the following liquidity ratios over time as result components:
- cumulative total cash flow requirement,
- Available uncovered and covered funding potential including planned new business and extensions according to the excess coverage requirements of the rating agency Moody's,
- further detailed data for planning and control activities.
Liquidity risks are limited using the structural liquidity forecast and the stress scenarios based on the available liquidity within a year.
In addition, the NSFR is calculated quarterly across all currencies in accordance with CRD IV. It is also shown separately for all relevant currencies (currently EUR and CHF). Since there is currently no binding minimum size for compliance with the NSFR from the supervisory authority and the values are currently stable at just over 100 percent, there is currently no active control of this key figure.
In order to reduce the refinancing risk, MünchenerHyp endeavors to refinance loans with matching maturities as far as possible. The bank continuously checks whether the refinancing sources relevant to it (especially in the cooperative financial network) are still available. In order to limit the market liquidity risk, ECB-eligible securities are mainly acquired in business with governments and banks, which can be used for open market transactions at any time. MünchenerHyp does not have more illiquid bonds such as Mortgage Backed Securities (MBS) or the like.
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