Abstract
The article deals with the liquidity risk in the banks in the context of the financial crisis. At first, the balance sheet and market liquidity are defined and the main principles of the methods for measuring liquidity risk, which banks use, are identified. Then follow review of main challenges of managing the liquidity of banks. Finally, it discusses qualitative regulatory requirements and eligibility of newly formulated standards with regard to minimum liquidity in general and in relation to the Czech banking sector in particular.
Highlights
In response to the financial crisis and its impacts on financial institutions, new regulatory requirements for the banks’ liquidity management were introduced
The presented paper aims to specify the liquidity of the bank, outlines the main principles applied for its measurement and describes the regulatory requirements
It focuses both on the original, minimum standards for the liquidity risk management, as well as discusses the new, quantitative approach, with an emphasis on the legitimacy of its application on the banking sector of the Czech Republic
Summary
In response to the financial crisis and its impacts on financial institutions, new regulatory requirements for the banks’ liquidity management were introduced. In the first place this is the size of the difference in bid–ask quotations[5] for individual traded financial instruments and the volume of completed transactions that may be executed without significant impact on market prices of the given assets These are so-called costs of implementation or costs of banks to close their positions within a short time. A crucial part of the asset side of banks’ balance sheets is represented by loans provided to non-bank clients These are financial instruments with a given maturity. The trend in liquidity management is to work on the liability side rather with short-term maturity of financial instruments that represent for a bank low interest costs, while on the assets side to concentrate on longer maturities, linked from the bank’s perspective with expectations of higher interest incomes. There may be identified three basic concepts of the liquidity measurement: methods based on stock quantities, methods based on cash flow monitoring, and model approaches
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