Service overview

Market and liquidity risks assessment

Figure 2. Example of a crisis’ effect on the credit system - extra losses from main risks in a negative macroeconomic situation.

A bank needs to take customers’ money to give credit. Loans’ interest rates and lifetime differ. Possible debit-credit problems bring about so-called liquidity risk. There is always a possibility greater than zero that a bank will be unable to meet its obligations at some point during the year. This is called cash gap and usually happens when a bank’s customers demand their money back and the bank is short of ready cash. To minimize this risk banks adopt special borrowing policies, e.g. match funding – a way to balance assets and liabilities across loan lifetimes and currencies.

Besides liquidity risk, there are also market risks. In case of retail credit banks face both interest and currency risks. Spreading these risks across lifetimes and currencies helps avoid the worst surprises. To develop a good strategy for attracting funds banks must evaluate and forecast asset structures. This way deals can be planned in a sensible order. To protect against interest risk banks try to attract “long money” when interest is low and create buffers against losses when interest rises high.

RRAS has a in-built assessment and forecasting function for finding effective funding strategies, reducing market and liquidity risks.

Service

• Scenario analysis and forecasting
• Stress-testing
• Risk factors determination and analysis
• Scoring cards calibration
• Credit risks assessment
• Market and liquidity risk assessment
• Hedging
• Funding plan
• Reserves forecasting
• Pricing
• Capital adequacy
• Basel
• Model validation