Liquidity risk

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With liquidity risk (sometimes refinancing risk ) is the risk referred for settlement of due payments required cash or only to increased funding costs to procure. Liquidity risk is a financial risk .


The liquidity or refinancing risk arises from the fact that funds are raised with a capital commitment period shorter than the amount invested. It is a typical risk for banks and results from their macroeconomic function of maturity and lot size transformation .

There is a tendency for investors to make funds available to banks for a shorter period of time (e.g. in current accounts or as time deposits), while longer-term loans are in demand (e.g. investment loans or real estate financing ). This results in the need to extend or replace the systems that become due. First and foremost, this assumes that investors trust that their investments are safe at the bank.

The refinancing risk is often divided into three categories:

  • Refinancing risk ie p.
  • Deadline risk
  • Retrieval risk

The refinancing risk arises from the fact that the agreed capital commitment periods are longer on the assets side than on the liabilities side, which harbors the risk that follow-up financing cannot be presented (hence follow-up financing risk or substitution risk ).

The deadline risk is the risk that agreed incoming payments - e.g. B. Loan repayments - delay and thus the corresponding inflow of liquidity is missing.

Similarly, the call risk is the risk that means of payment are used prematurely or unexpectedly, such as calling up deposits or loan commitments. In its most extreme and best-known form, the call risk is a “ bank run ”.

The aforementioned forms of refinancing risk directly threaten the existence of the company concerned through the risk of insolvency . A more recent term is the liquidity spread risk, which describes an earnings risk resulting from the maturity transformation. The liquidity spread risk is the risk that, in the case of follow-up financing, the interest premium that the debtor who procures liquidity has to pay due to the credit risk (liquidity spread from the perspective of the debtor, creditworthiness spread from the perspective of the creditor), increases and thus increased refinancing costs reduce the profit.

Classic theories on refinancing risk

The following four theoretical approaches to refinancing risk can often be found in the business literature, although these are only of limited importance today:

  • Golden banking rule ( Otto Hübner 1854): According to the golden banking rule, there should be no mismatch between the capital commitment period on the liabilities side (borrowing of funds) and that of the assets side (use of funds). Thus, no maturity transformation would be carried out and there would be no liquidity risks.
  • Sediment theory ( Adolf Wagner 1857): The sediment theory takes into account that deposits are at least partially available for longer than their nominal retention period. One example is checking accounts in which money is usually invested longer than the one-day notice period. The part of the nominal short-term deposits that are not withdrawn again after a short period of time can be used as a “bottom deposit” to refinance longer-term investments.
  • Shiftability theory ( Karl Knies 1879): The shiftability theory is, so to speak, the counterpart of the sediment theory for assets. It takes into account that at least some assets are liquidated (“cashed in”) before the end of their actual term and thus can offset cash outflows . For this reason, banks hold a so-called liquidity reserve of market-liquid securities , which can be converted into liquidity if necessary through sale or repurchase agreements .
  • Maximum burden theory ( Wolfgang Stützel 1959): In contrast to the approaches mentioned so far, the maximum burden theory sees the refinancing risk as an income risk. It assumes that every asset can be liquidated with a corresponding discount. If the sum of these value deductions is less than the amount of equity capital , any outflow of funds can be covered without the risk of bankruptcy.

The golden rule of banking negates the economic task of maturity transformation and is therefore meaningless in modern banking. The sediment and shiftability theory have found their way into modern liquidity risk management methods. Likewise, the basic idea of ​​the maximum burden theory that assets may only be liquidated at a discount is still used. However, the maximum burden theory is not suitable as a control instrument under the going concern assumption (see continuation principle ), since it may provide for the liquidation of a considerable part of the company.

Modern approaches to risk management

Until the financial crisis from 2007 onwards , the liquidity risk in banks was only of secondary importance. It was assumed that banks would be able to obtain the necessary liquidity in the short term via the money market , which was very liquid at the time . The prerequisite for this, however, was a good credit rating (creditworthiness) . From this point of view, a bank only needed to manage its own creditworthiness in order to also manage the liquidity risk. This relationship is shortened by the thesis "Liquidity follows creditworthiness", which goes back to Wolfgang Stützel .

However, even before the financial crisis, it was recognized that refinancing to be obtained at short notice, in the event of unfavorable conditions, can affect the profitability and thus the creditworthiness of a bank. In addition, the danger of upheavals on the money and capital markets was recognized, which in extreme cases could lead to the illiquidity of an institution. Ultimately, a bank with a good credit rating had to be able to signal this good credit rating to the market in case of doubt. These findings made it necessary to control the liquidity risk independently, based on the sources of risk.

Current approaches to the management of the refinancing risk therefore focus on the consideration of payment flows . In doing so, future payment outflows and inflows are derived from the business portfolio, taking into account the sedimentation and shiftability theory.

The essential elements of liquidity risk management are:

  • A framework for liquidity risk management (risk strategy) adopted by the management
  • Defined competencies and responsibilities
  • Methods and tools for measuring and monitoring liquidity risks.
  • Analysis of the impact of crisis scenarios on the company's liquidity.
  • Rules for limiting liquidity risks, e.g. B. the definition of risk-limiting limits that are in line with the risk strategy.
  • The establishment of a liquidity risk-related reporting system.
  • Definition of measures in the event of a liquidity bottleneck (emergency planning).
  • Diversification of refinancing sources (e.g. customer deposits, securities repurchase agreements , own issues , securitisations ).
  • Maintaining reserve liquidity to cover unexpected cash outflows (in the form of liquid securities, eligible collateral , credit balances, loan commitments received ).

Liquidity ratios

To assess the liquidity risk, liquidity ratios are traditionally used, which are usually formed as quotients from balance-related variables. Control impulses can be derived from the observation of the indicators over time and from target specifications. Typical indicators are:

  • The liquidity index, which sets the total of the term-weighted assets in relation to the total of the term-weighted liabilities . The larger the liquidity index is compared to number 1, the higher the extent of the maturity transformation .
  • The classic key figures of first, second and third degree liquidity (so-called liquidity degree ) set the amount of short-term payment obligations in relation to the volume of short-term cash or liquidity reserves.
  • Key figures on deposit concentration express the extent to which large depositors are available and thus how the liquidity situation can be influenced by the behavior of individual depositors.

The general disadvantage of these liquidity ratios is that they only reflect parts of the liquidity risk drivers and also relate directly to balance sheets and not to cash flows.

Liquidity gap analysis and gap analysis

A widespread method of representing the liquidity risk is represented by the liquidity gap analysis and the associated gap analysis. A liquidity gap analysis contains a forecast of future cash inflows and outflows, which are shown on a timeline. The forecast is made on the basis of the bank's business, possibly taking into account new and follow-up business. In addition to balance sheet items, off-balance sheet items such as loan commitments or items in financial derivatives are also taken into account.

Using the liquidity gap analysis, the deadline incongruences ("gaps") between incoming and outgoing payments can be analyzed ("gap analysis").

While the payments due at the individual points in time are shown in the normal liquidity gap report, the cumulative liquidity gap report shows the sum of all payments up to the individual points in time. The background to this is that cash surpluses that lie earlier can be used to cover a later need for cash. At the point in time at which the balance of the cumulative payments becomes negative, the company in question would be insolvent if the assumptions made and without additional measures were taken.

The liquidity risk (in the sense of an uncertainty about future developments) is caused by transactions and products whose future cash flows are still unknown. Modeling assumptions must be made for these transactions and products. Liquidity gap matrices are often made using various assumptions. In particular, by assuming unfavorable business or market developments (stress scenarios, stress tests) it can be examined whether the company in question is able to survive such developments.

By linking the liquidity gap profile with variable refinancing surcharges, the liquidity risk that affects profit or loss can be determined (“liquidity adjustment procedure”).

Banking prudential treatments

The prudential treatment of liquidity risk is largely regulated at national level. International harmonization, as in the capital rules by the Basel Committee was made, was previously lacking. As a result of the financial crisis from 2007 onwards , the Basel Committee has, however, drawn up recommendations on quantitative regulations to limit liquidity risks, which have been in place since December 2010 as an international framework agreement on measurement, standards and monitoring of liquidity risk . Herein two supervisory measures are proposed, with the limit liquidity risk in the short term (up to 30 days, liquidity coverage ratio LCR) and in the medium term (up to 1 year, stable funding ratio should be limited NSFR) deadline. In addition, standards are formulated for the supervisory activities of the banking supervisory authorities.

With regard to the LCR and the banking supervisory standards, the standard was revised again in January 2013 (“The Liquidity Coverage Ratio and liquidity risk monitoring tools”).

At the European level, the standards of the Basel Committee on LCR have been implemented in the Capital Adequacy Ordinance and the associated technical standards since 2014 . The national regulations apply in parallel until the transitional period expires. In Germany, these are the provisions on liquidity risk in Section 11 of the German Banking Act . These in turn are specified in more detail in the Liquidity Ordinance , which on January 1, 2008 replaced Principle II , which was valid until then .

In 2000 , the Basel Committee on Banking Supervision published the recommendation “Sound Practices for Managing Liquidity in Banking Organizations” on internal management processes . A revised version was published in September 2008, also in response to the financial market crisis.

The Committee of European Banking Supervisors (CEBS, since 2011 Committee of the European Banking Supervision Authorities EBA) also presented guidelines in December 2009 ("Guidelines on Liquidity Buffers & Survival Periods") that apply to the bank's internal risk management processes as defined in the second pillar of Aim Basel II .

At the national level, the German requirements of § 25a apply in this context, as for all risks Banking Act to the risk management . These are further detailed in MaRisk . In particular, there is section BTR 3 on liquidity risks in MaRisk, which is primarily based on the refinancing risk. The changes in the Basel “Sound Practices” were incorporated into the new version of MaRisk from August 2009 via the European Banking Directive.


  • Peter Bartezky, Walter Gruber, Carsten S. Wehn ​​(Eds.): Handbook Liquidity Risk . Identification, measurement, control. Schäffer-Poeschel Verlag, Stuttgart 2008, ISBN 978-3-7910-2747-0 .
  • Rudolf Duttweiler: Managing Liquidity in Banks. John Wiley & Sons, Chichester, 2099, ISBN 978-0-470-74046-0 .
  • Leonard Matz, Peter Neu (Eds.): Liquidity Risk. Measurement and Management. John Wiley & Sons (Asia), Singapore 2007, ISBN 978-0-470-82182-4 .
  • Michael Pohl: The liquidity risk in banks - Approaches to measurement and profit-oriented control. , Knapp Verlag, Frankfurt am Main 2008, ISBN 978-3-8314-0828-3 .
  • Wagner, Schmeling, Meyer, Kemp (KPMG): Risk factor liquidity in credit institutions. Research in Capital Markets and Finance Working Paper 2002-3, LMU Munich.

Web links

Basel Committee on Banking Supervision



Individual evidence

  1. The system is as follows: Hans E. Büschgen, Christoph J. Börner: Bankbetriebslehre. 4th, revised and expanded edition. Lucius & Lucius Verlagsgesellschaft, Stuttgart 2003, ISBN 3-8282-0241-4 , pp. 278f. Also: Michael Schulte: Bank Controlling II: Risk Policy in Credit Institutions. 3. Edition. Bankakademie Verlag GmbH, Frankfurt am Main 1998, ISBN 3-933165-12-1 , p. 40.
  2. ^ Michael Schulte: Bank Controlling II: Risk Policy in Credit Institutions. 3. Edition. Bankakademie Verlag GmbH, Frankfurt am Main 1998, ISBN 3-933165-12-1 , p. 39. Wolfgang Stützel's theses can be found in Wolfgang Stützel: Bank Policy - Today and Tomorrow. 3. Edition. Knapp, Frankfurt am Main 1983, ISBN 3-7819-0292-7 .
  3. ^ Michael Schulte: Bank Controlling II: Risk Policy in Credit Institutions. 3. Edition. Bankakademie Verlag GmbH, Frankfurt am Main 1998, ISBN 3-933165-12-1 , p. 39f.
  4. ^ Duttweiler: Managing Liquidity in Banks , pp. 89f. Matz: Monitoring and Controlling Liquidity Risk. In: Matz, Neu (Ed.): Liquidity Risk. Measurement and Management. Matz, New: Liquidity Risk Management Strategies an Tactics. In: Matz, Neu (Ed.): Liquidity Risk. Measurement and Management.
  5. ^ Michael Schulte: Bank Controlling II: Risk Policy in Credit Institutions. 3. Edition. Bankakademie Verlag GmbH, Frankfurt am Main 1998, ISBN 3-933165-12-1 , p. 43ff.
  6. ^ Michael Schulte: Bank Controlling II: Risk Policy in Credit Institutions. 3. Edition. Bankakademie Verlag GmbH, Frankfurt am Main 1998, ISBN 3-933165-12-1 , p. 45.
  7. ^ Peter Neu and Leonard Matz: Introduction . In: Leonard Matz, Peter Neu: Liquidity Risk .
  8. Michael Pohl: The liquidity risk in banks - Approaches to measurement and profit-oriented control , 2008.
  9. Basel Committee on Banking Supervision: Basel III: International framework agreement on measurement, standards and monitoring of liquidity risk . Ed .: Bank for International Settlements. 2010, ISBN 92-9131-331-9 ( [PDF; 349 kB ; accessed on December 25, 2018]).