Liquidity risk Management-UK Banks – Essay Example
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Liquidity risk Management-UK Banks Liquidity risk Management-UK Banks Aim of the research The main purpose for conducting the study is to determine how much there is an increase or a decrease period in the liquidity risks, in the U.K banking sector. Another reason for this research is to highlight its effects on the performance of the banks as ell as the overall performance. The research has scrutinized the contingency planning and liquidity within the background of the banks role within the financial systems. The factors, which affect the liquidity risks, have to be considered.
Significance of study
The importance of the research is to understand the use of an effective management practice to reduce the liquidity risks in U.K banking sector. The recent dissertation is an attempt to find out the significant risks like liquidity which affect the banking sector performance in the UK. The outcomes will help the government and other participants in enhancing the performance of the banking management to control the the liquidity involved.
The objective of the research
1. The effect of the bank stability, disclosure of the liquidity risks in critical economic strategies and conditions to be applied in such circumstances.
2. To manage the liquidity risk in the UK banking sector.
3. To determine and find out the possible recommendations to reduce the risks
4. The impact of financial markets, economies and the banking industry towards managing the liquidity risks.
5. The significance of a governing framework within the banking industry regarding managing the liquidity risks.
1. Introduction to financial risks
2. Central tenets of financial risk management
3. The application of financial risk management within the banking sector
4. Tool and techniques used in financial risk management
5. Liquidity risk metrics
6. Liquidity risks indicators
7. Drivers of liquidity risks within the banking sector
8. Strategies employed by the banking industry to manage liquidity risks 9. Assessing information from commercial sources will provide insight into the current and contemporary issues facing risk management within the banking industry.
10. Company reports
11. Industry specific publications
Questions of research
The study question will assist us to understand liquidity risk concepts which will be a benefit to the banking sector of the UK.
1. What is liquidity management?
2. The importance of the liquidity management in baking.
3. Factors influencing liquidity risks.
4. How to failure to address liquidity risks contribute to systemic risk and financial contagion Research methodology
The research seeks to examine risk management especially related to management of liquidity risks within the banking sector. The research will be contributed from secondary sources that will be taken from the annual report of the balance sheet and income statement from each bank for the period of 2006 to 2011, as well as primary sources will be used and be taken from journals and company publications. Furthermore, a number of hypotheses will be included in order to be used as a key finding, and this will be as a number of financial calculations (calculations related to the banking sector which used to control liquidity) The liquidity ratio is funded for each bank by using the steps:
1) Capacity ratio net loans/total assets
2) Loan to deposit ratio= net loans/total asset
3) Reserve ratio= cash/customer deposit
In order to accomplish the goals, the secondary data have to be identified in the most appropriate collection method. Written data sources are mainly used in the research projects which include archival research and written documents. Non written documents are also used, but they are not used oftenly because they are not that accurate. Documents are also used in acquiring of qualitative data.
Conducting a review of the literature (using the secondary data collection method mentioned) following the liquidity management of financial institutions.
The role of the central banks
Other financial and economic aspects towards liquidity risks.
Identifying the risk management policies
The financial sector has been pushed to the front in the wake of the world financial crisis, which this event given the implications upon world economies. For this reason, banks in the particular have been subject to close study as the blame for the financial scramble that has been placed squarely in these institutions. As a result of this, greater emphasis and interest are being placed on the ability to assess, manage and moderate key risks, which the banking sector is liable to as a means of avoiding similar events in the prospect. The opinion of, the proposed research will look to investigate an area which us currently of considerable interests of bankers, regulators, policy makers and society at large given the essential role worked by the financial institutions in the United Kingdom.
Acharya, V.V., and Schaefer, S. (2006) Liquidity Risk and Correlation Risk:
Implications for Risk Management, Available at: http://pages.stern.nyu.edu/~sternfin/vacharya/public_html/acharya_schaefer2.pdf
Barfield, R. and Venkat, S. (n.d.) Liquidity risk management; Journal of Global perspectives on challenges and opportunities, Available at: http://www.pwc.com/gx/en/banking-capital-markets/pdf/Liquidity.pdf
Oracle (2009) Liquidity Risk Management in Financial Services: Strategies for Success; Oracle, Available at: http://www.oracle.com/us/industries/financial-services/045994.pdf
Yan, M., Hall, M..J.B., Turner, P. (2011) Estimating Liquidity Risk Using The Exposure-Based Cash-Flow-at-Risk Approach: An Application To the UK Banking Sector; Discussion Paper Series, Available at: http://www.lboro.ac.uk/departments/sbe/RePEc/lbo/lbowps/Yan_Hall_TurnerWP6.pdf
Fiedler R., (2007) “A Concept for Cash Flow and Funding Liquidity Risk”, Practices, John Wiley & Sons, Chi Chester
European Central Bank, (2007) Liquidity Risk Management of Cross-Border Banking Groups in the EU
Amihud, Yakov, (2002) “Illiquidity and Stock Returns: Cross-Section and Time-
Series Effects”, Journal of Financial Markets
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