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Master Course: Liquidity Management Crash course: Liquidity Enhancement Tactics

Liquidity enhancement tactics

For Systemic Crisis

Liquidity management tactics may include the following:

  • Do not plan to rely on selling assets during cyclical peaks or credit crunches
  • As a cushion for capital market disruption hold very high quality assets such as treasury securities
  • Manage the maturities of borrowings
  • Do not plan on ready or cost effective access to borrowed funds
  • For short term quick sources of liquidity focus on holdings of investments and loans that mature soon
  • Geographically diversify funding sources
  • Monitor and limit exposure to market liquidity risk from securities and instruments dominated by single or few market makers
  • Monitor and control exposure to increased funding risk from backup lines of credit and contingent credit commitments

For company specific crisis

Liquidity management tactics may include the following:

  • Using securities to raise cash.
  • The company should hold a stock of liquid assets that can be sold quickly and discreetly in order to replace funding which has been withdrawn owing to some actual or perceived problem. The objective is that the stock should be enough to tide the company over a survival period, usually taken as one working week, which would buy time for the company to arrange more permanent funding solutions
  • Selling loans to raise cash. However, since most company- specific funding crisis are triggered by credit losses, this may not be a reliable source for raising funds during a name crisis.
  • Issuing subordinated debt

Increasing liability stability by for example, lengthening liability maturities to the extent possible and affordable.

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