Treasury Cash and Liquidity Management

By the end of this course, participants will:

• Develop skills in cash flow management, including forecasting, optimization, and risk
• Gain a thorough understanding of short-term funding strategies, money market instruments, and the multi-currency liquidity management.
• Learn how banks fund themselves for the long-term using bonds, notes, structured products, and other capital instruments.
• Explore the integration of Asset and Liability Management (ALM) with treasury
• Understand compliance with Basel III regulations, including the capital adequacy and liquidity requirements.

Liquidity Management Introduction

• Objective: Provide an overview of the fundamentals of liquidity management
• Topics:
  • Importance of liquidity management in banking
  • Role of the Treasury department

Cash Flow Reports and Forecasting

• Objective: Build foundational knowledge in cash flow reporting and forecasting.
• Topics:
  • Components of cash flow reports: operational, investing, and financing activities
  • Challenges of forecasting cash flows: variability in revenues and expenses, early and delayed repayments, unexpected client requirements, operational delays

Cash Flow Analysis and Optimization

• Objective: Develop techniques for analysing and optimizing cash flows
• Topics:
  • Identifying cash flow inefficiencies
  • Trade finance and invoice factoring – a short introduction to the products and their cash flows
  • Liquidity pooling and sweeping
  • Using money markets to cover short-term requirements

Money Markets – Deposits, Loans, and Repos

• Objective: Explore money market products and their role in short-term funding. 
• Topics:
  • T-bills, commercial paper, bankers acceptances, interbank deposits, loans, repos
  • Pricing and trading money market products
  • Money market interest rates: IBOR, risk-free reference rates

Multi-Currency Cash Flows

• Objective: Address the complexities of managing cash flows in a multi-currency world.
• Topics:
  • Currency mismatches and FX exposure
  • Introduction to FX swaps and their uses: overnight and tom-next swaps for multicurrency funding
  • Techniques for optimizing multi-currency liquidity, including short-term funding gaps

• Activity: Using a multi-currency cash-flow report to determine the foreign currency funding requirements of a bank.

Asset and Liability Management (ALM)

• Objective: Explore the role of ALM in maintaining long-term balance sheet stability.
• Topics:
  • ALM challenges: mismatches in interest rates, currencies, liquidity, optionality
  • ALM as a source of profits, and a source of risk
• Activity:
  • Debate: Should ALM be integrated with treasury or be a standalone function?
• Case Study:
  • ALM mismatches and liquidity problems at Silicon Valley Bank in 2023

Bond Issuance

• Objective: Long-term funding with debt issuance
• Topics:
  • Fixed income bonds: Types of bonds: senior bonds, subordinated bonds, perpetual bonds
  • Bonds with non-fixed payments: FRNs, callable, putable, extendable, convertible
  • Structuring and pricing bonds for optimal funding
  • Bond hedging with derivatives: IRS, cross-currency swap, swaptions

Securitization

• Objective: Understand how banks can remove liabilities from the balance sheet by securitizing assets
• Topics:
  • Introduction to the securitization process
• Case Study:
  • Mortgages, MBS, CMO: origination and risk

Medium-Term Funding with Structured Products

• Objective: Introduce structured products as a tool for accessing funding from wealth management clients
• Topics:
  • How structured products can provide cost-effective funding from investors via the wealth management division
  • Some structured product examples

Compliance and the Basel banking regulations

• Objective: Understand regulatory requirements for banks, with particular attention paid to the Basel regulations
• Topics:
  • Capital adequacy requirements under Basel III
  • Net Stable Funding Ratio (NSFR)
  • Liquidity Coverage Ratio (LCR)
  • Strategies to ensure compliance
• Activity
  • Comparing the funding ratios for some key banks

Long-Term Funding with CoCo or AT1 Bonds, and Preference Shares

• Objective: Explore innovative instruments for capital-efficient long-term funding.
• Topics:
  • Features and benefits of CoCo bonds and AT1 bonds
  • Role of preference shares in strengthening capital adequacy metrics

Liquidity Planning and Liquidity Risk Management

• Objective: Develop skills and strategies for managing liquidity risks and crises.
• Topics:
  • What can go wrong? Analysis of liquidity and funding risks
  • Creating liquidity plans aligned with business objectives
  • The role of the risk management team, risk reports and identifying liquidity risks
  • Early warning signs of funding squeezes
  • Emergency liquidity measures and central bank facilities
• Case Studies: S Korea 1997, Hungary 2008, Egypt 2016, USA 2023

Market Risk Management using Derivatives – Optional Module

• Objective: An optional module to cover if there is spare time at the end of the Explore the tools available for managing market risks such as interest rate risk and FX risk
• Topics:
  • Short-term interest rate derivatives: futures and FRAs
  • Long-term interest rate derivatives: IRSs, cross-currency swaps, swaptions
  • FX hedging: forwards, FX swaps, cross currency swaps
• Activity:
  • Discussion of the advantages and disadvantages of using derivatives to reduce ALM and market risk

Course Summary and Q&A

• Objective: Recap the key lessons from the course.
• Topics:
  • Review of major concepts: cashflow management, funding strategies, liquidity planning, risk management, and regulatory compliance
  • Q&A