Managing Liquidity in Banks (PDF)

"Liquidity risk is a topic growing immensely in importance in risk
management. It has been much neglected by financial institutions
and regulators in recent years and receives, in the course of the
sub-prime crisis, sudden and great attention. This book is
well-structured and provides a comprehensive and systematic
approach to the topic. It will help risk controllers to
systematically set up a liquidity risk framework in their
bank."

--Peter NEU, European Risk Team Leader, The Boston
Consulting Group, and co author of Liquidity Risk Measurement
and Management

"Mr Duttweiler's book is a welcome addition to the literature on
liquidity risk measurement and management. In addition to his
contributions to liquidity risk theory and liquidity pricing, the
author provides a good overview of all of the critical
elements."

--Leonard Matz, International Solution Manager, Liquidity
Risk and co-author of Liquidity Risk Measurement and
Management

Liquidity Risk Management has gained importance over
recent years and particularly in the last year, as major bank
failures have led to a re-evaluation of the significance of
liquidity in stressed market conditions. Liquidity risk is closely
related to market risk and solvency, suggesting its significance in
times of volatile and 'bear' markets, where a single bank's
failure can have dramatic effects on market liquidity.

The term liquidity is not well-define, and a comprehensive
understanding of its common elements is often missing within a
banking organisation. In too many cases, liquidity risk management
has not been developed with a coherent framework and generally
accepted terms and methods, creating weaknesses in its structure
and vulnerability to market risk. In this title, Duttweiler
advances the study of quantitative liquidity risk management with
the concept of the 'Liquidity Balance Sheet', which allocates
portfolios into a specific structure, and consequently is able to
account for potentially negative surprises so that the necessary
buffers can be quantified.

The book begins with an overview of liquidity as part of
financial policy and highlights the importance of liquidity as part
of a general business concept and as protector and supporter of a
business as a going concern. The author examines the role o
liquidity in helping managers to achieve high-level liquidity aims
to support operating units to achieve business goals. He looks at
quantitative methods of assessing a banks liquidity levels,
including LaR and VaR, to establish an integrated concept in which
liquidity is incorporated into the framework of financial policies.
He also presents methods, tools, scenarios and concepts to create a
policy framework for liquidity and to support contingency
planning.