Liquidity Crisis_en

Liquidity Crisis

Impacts on The Financial Institutions

“suggested solutions”

Lecturer: eMad AbuShaaban

Business College

Accounting Department

April 2009

CONTENTS

Definition: Crisis, Liquidity, Liquidity Crisis, Coping Approach

1. Identify crisis impact on the financial institutions.

2. Measure/Quantify crisis impact.

3. Cope Techniques on crisis.

1. Identify crisis impact on the financial institutions.

- Impact on cash flow and liquidity.

- Impact on the balance sheet (assets and liabilities)

- Impact on portfolio quality,

- Impact on profitability Impact on income statements (income and expenses)

2. Measure/Quantify crisis impact.

- This tool should be used when considering:

- The funding strategy for new products

- The maturity of funding

- The maturities and modifications of present products (either loan or deposit products),

- The maturities of new products (either loan or deposit products),

- not to increase liquidity risk.

3. Cope Techniques on crisis.

External Tools

1. Insurance against defaulting.

- On loan portfolio as whole

- On individual loan

2. Loan Guarantees

- By PMA

- By other Governmental Body

3. Emergency Liquidity Fund

- Voluntary ELF

- Mandatory ELF

Internal Tools

- Designing Internal Policies and Procedures Modifications

- Designing Product Modifications

- Designing New Products

Bankruptcy Predicting Model

- Z-score

- Who Developed Z-score

- Uses of Z-score

- Z-score Components

End