Liquidity Risk Management

A financial institution's ability to accurately measure and effectively manage liquidity is vital. This was made evident in the financial crisis, which was as much due to an inability to sustain adequate liquidity as it was to asset quality.

Benefits

The primary purposes of liquidity risk management are to prospectively assess the need for funds to meet obligations and ensure the availability of cash or collateral to fulfill those needs at the appropriate time by coordinating the available sources of funds under both normal and stressed conditions. MountainView's liquidity risk management services confirm that you have in place an appropriate framework and sound practices for managing funding and liquidity risk based on your scope of business operations, complexity of business mix and regulatory mandates.

Specifically, we will provide you with the following:

  • A review of the conceptual framework of your general approach to monitoring and managing your liquidity position
  • An assessment of the effectiveness of measurement metrics employed for current and future liquidity positions
  • Confirmed methodologies for projecting and assessing expected liquidity needs
  • An affirmation that your liquidity policy appropriately documents and communicates your liquidity risk management philosophy and your framework for liquidity risk measurements, monitoring, management, limits and controls.
  • An assessment of the adequacy of your contingency funding plan (CFP) with respect to your business needs, regulatory mandates and stress testing.

Liquidity Model Validation

MountainView can validate your liquidity model and the tools you use to measure and manage your liquidity, and create confidence in your model's analysis and risk testing. Our comprehensive service examines every facet of your liquidity model and supporting model governance. This service is the most robust solution possible for meeting business and regulatory needs and addresses all aspects of the Supervisory Guidance on Model Risk Management (SR 11-7). We provide you with a comprehensive review of the conceptual capabilities and limitations of the model, as well as a detailed technical validation of all model specifications, from data inputs, cash flow generation, assumption inputs for both on-balance sheet and contingency funding sources, to risk metrics and reporting. We effectively challenge model forecast accuracy and confirm that all liquidity components are addressed and applied correctly in stressed scenarios. The final component of our validation, the model governance review, assesses the governance solution supporting your liquidity model’s implementation and use, including your documentation and user controls.

MountainView's comprehensive ALM model validation includes a formal model ranking relative to peer model implementations, with detailed model findings ranked in order of importance or model risk materiality. Based on our years of validation expertise and years of hands on liquidity management in banking institutions, we also provide you additional insight with advanced industry practices to offer added perspective and guidance.

Liquidity Model Cash Flow Inputs Enhancement

MountainView offers an analysis of your cash flow inputs in order to optimize the effectiveness of your liquidity measurement and risk controls. MountainView uses its patented advanced assessment methodology to assess your historical experience with respect to your core deposit behavior, loan prepayment/paydown and loan credit quality analysis. We apply forecasts from those analyses to define high-precision cash flow inputs, including loan default influences, for your liquidity model. This refined information empowers you to measure your true liquidity position to support both your compliance and performance.