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Bank Treasury Risk Management



This course offers comprehensive coverage of the key risk areas for a bank’s Treasury and how the various risks are managed, from both a practical and a regulatory perspective.

It focuses on Liquidity, Market and Operational Risk, since Credit risk management is normally a separate role but this can be incorporated.

All case studies can be based on the client.

It is presumed delegates have a reasonable understanding of fixed income and derivatives.


  • The Risk Management process: Identify, Quantify, etc.
  • A retail and commercial bank’s business model and the main risks that entail
  • The Treasury’s core roles and responsibilities
  • Exercise: a bank’s business model, its main risks and the Treasury’s roles

Liquidity risk

  • Defining solvency
  • The different sources of liquidity and their drawbacks
  • The different methods of quantifying Liquidity risk:
    • Loans to Deposit ratio
    • Gap analysis
  • Liquidity risk regulation – Basel:
    • The Liquidity Coverage Ratio (LCR), what counts as High Quality Liquid Assets
    • The Net Stable Funding Ratio (NSFR)
  • Monitoring tools:
    • Contractual Maturity Mismatch
    • Concentration of Funding
    • Available Unencumbered Assets
    • LCR by significant currency
    • Market-related monitoring tools
  • Credit ratings
  • The problems of excess liquidity and FX
  • Exercise: Identifying the main sources of liquidity and their drawbacks
  • Exercise: Calculating Loans to Deposits ratios
  • Exercise: Gap analysis
  • Exercise: Calculating the LCR
  • Exercise: Calculating the NSFR

Market risk

  • What is Market risk and how does it arise?
  • Counterparty risk and how it arises, how it varies between different instruments
  • Spot FX , Herststatt risk and CLS Bank
  • Basis risk – the frictions between related markets including fixing risk
  • Quantifying Interest rate risk
  • Quantifying Interest rate risk: Basel
  • Quantifying Market risk: the different types of VaR and their limitations, Regulatory VaR
  • Stress-testing
  • Credit Support Annexes (CSAs) and margining
  • Dealing with limit excesses
  • Robust ad-hoc procedures
  • Sovereign risk
  • Exercise: Identifying sources of Market risk

Operational risk

  • The scope of Operational risk
  • How are portfolios valued?
  • Valuation of different instruments
  • Independent verification of market data
  • The control function
  • Confirmation of transactions
  • Yield curve construction
  • Profit analysis: where is the profit coming from and how?
  • Profit v VaR and capital
  • How are budgets set, what are the consequences for outcome v budget
  • Basel and Operational risk – the different approaches
  • Exercise: Deciphering a position limit report. Participants will be provided with a market risk limit report and asked to uncover all the market risks being run, and to suggest a suitable limit risk structure.
  • Exercise: Analysing a real-life valuation fraud


  • The official v unofficial culture and the pressure to perform
  • Management structure
  • The dangers of group-think