Seminar: "Current issues on liquidity and funding risks: the Bank of Italy's experience in analysis, measurement and surveillance"Rome, 20-22 June 2018

Funding arrangements link banks with other banks, financial institutions and the non-financial sector. As a result, failure of one institution to meet its obligations in full and on time will potentially cause others to be short of liquidity, thus leading to a cascade of illiquidity. Liquidity is also inherently fragile: markets that are liquid in normal times may rapidly freeze up as conditions deteriorate, and what seems like a stable source of funding can abruptly become unavailable.

Against this backdrop, the seminar intends to offer an overview of the tools used at the Bank of Italy to analyse, identify and supervise liquidity and funding risks from both a micro and a macro perspective.

The seminar covers the following topics: market liquidity indicators; banks’ funding and liquidity mismatch across maturity buckets; the refinancing risk of bonds and market funding; the liquidity issues connected to intraday payments and settlements; early warning signals; systemic risk and impact on market and funding liquidity; stress test − key scenarios and trigger events (e.g. change in rating or market disruption); the liquidity of assets under stressed market conditions; collateral assessment; asset encumbrance; prudential measures affecting funding policies; and central banks’ liquidity assistance measures and lending of last resort policies. In a dedicated session, participants are invited to share their methodologies and experience in analysing liquidity risk and preparing to address liquidity crises.