Controlling Liquidity Risk

Abstract

We know from our discussion in previous chapters that active management of liquidity risk is central to a company’s success. A well-structured approach to managing risks that have been identified, measured, and stress-tested helps a company avoid the cash flow surprises that can lead to problems. Liquidity risks can be managed through a multi-stage process that is based on developing proper governance practices, defining and implementing a liquidity risk mandate, assigning management duties and responsibilities, creating and implementing liquidity risk controls, and monitoring the liquidity risk profile. We consider each of these essential points, summarized in Figure 9.1, in greater detail in this chapter.