>> Due date
categories are more or less subtle, and this according to the
assets and liabilities term. For close dates of payment, the categories
cover short periods of time, for remote dates of payment; the
categories cover long periods of time. Indeed, it is necessary
to know precisely the liabilities coming to fall due in the up-coming
days although such precision no longer exists for six months due
dates, a year or even more.
>> Assets and
liabilities are evaluated with the greatest accuracy possible,
which leads to solve several difficulties:
• The evaluation of off-balance sheet commitments. Those
commitments have been considerably developed in banks those past
years with security nets, confirmed credits, on the operations
of exchange term or financial tools and options.
The payability of those commitments is subjected to a future but
certain event. If it is difficult to evaluate the incomings and
outgoings of funds resulting from those operations, it is however
necessary to estimate them on the basis of past observations or
even by enforcing a cautious principle: the uncertain nature of
those flows is left aside and the off-balance commitments are
brought back into the due date profile.
• Assets and liabilities without specification term. It
is, for example, the cash balance of the bank, insight deposits
or common equity. Insight deposits should appear in the category
of the closest due date for their refund can happen at any time.
But experience shows that insight deposits are particularly stable,
for they are spread between a large number of depositors. That
is why, in some methods of liquidity risk counting – including
the one of banking commission- uses and resources without stipulation
term are not taking into account.
• The Assets and liabilities of juridical due date differing
from their practical due date. Some credits, so as overdrafts,
have a short-term due date; but as they are regularly renewed,
the bank seems more committed with those kind of credits than
with, for example, medium-term credits. Other credits of this
kind include early refund clauses than can change the due dates.
It is therefore the experience acquired by the bank in that field
that will allow it to establish the least due date profile.
>> The due
date profile, like a balance sheet, presents an instantaneous
characteristic. Therefore, it has to be regularly updated.
2)
The calculation of a liquidity index:
Three methods of a liquidity index calculation will be suggested:
>> Successive
dead-ends method: a dead-end is defined as this: for a category
of due dates, it is the difference between assets and liabilities.
We then calculate for each category a dead-end which is an amount
indicator, the length and due date of the transformation made
by the bank. The calculation highlights the due date discordances
as well as the maximum funds outgoings that the bank will have
to face, time after time.
>> Accumulated
dead-ends method: the due date profile is combined by categories
and we then calculate the accumulated liabilities and assets by
due date and then the accumulated dead-ends. The amount and the
claim event date of the maximum financing need are determined.
>> Numbers
method : this method balances the assets and liabilities of
each category by the average number of days of each category.
Then we calculate the ratio:
 of balanced
liabilities / of
balanced assets
• If the ratio is superior or equal “1”, it
means that the bank does not transform for it has more balanced
resources than balanced uses.
• The weaker the ratio is, the more the bank transforms
short-term resources into long-term use.
The banking commission calculates the liquidity indexes concerning
the change into francs by distinguishing the operations with the
customers and the treasury and inter-banking operations as well
as the change into currencies.
Beyond the exposure to the liquidity risk, the calculation of
indexes also enables to evaluate the illiquidity cost: for a given
due date, the dead-end measures the amount of the loan to make
in order to balance the deficit and the loan rate, the cost of
the coverage of the liquidity risk.
B- The management of liquidity risk
Broadly speaking, the management of liquidity risk consists in
borrowing additional resources that will enable to honour due
dates: it is therefore based on the easiness of access of a bank
to the different funds markets that also depend on elements such
as the notoriety, the size, the profitability and the quality
of the shareholder, all elements that funds contributors take
into account. But the borrowing bank may have to borrow at high
rates (in case of a crisis on the exchange market, for example)
and to bear a negative interests margin.
Thus, according to its easiness of access to the markets and the
costs that come from them, a bank accepts a more or less important
transformation. Consequently, the bank sets limits to different
categories of the due dates profile in order to maintain the liquidity
risk in the desirable limits.
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