Validation of liquidity risk models

Challenge

The assignment concerned the validation of the liquidity models which the development bank FMO has in place to monitor its balance sheet liquidity position. The model is also used in its ILAAP. The challenges of the model concerned balancing regulatory requirements and business requirements, as well as the importance of proper controls in Excel as end user model.

Approach

The model was validated structurally, starting with the model documentation, followed by the data, the model and the presentation of the results. Throughout the process we conducted regular meeting with the client to make sure we were on the same page.

Result

The assignment resulted in a fully validated liquidity model which was working properly and which showed the stable liquidity position of the client. Key man risk in the model was eliminated as the model is accurately documented. RiskQuest offered additional value in this assignment by its extensive knowledge of liquidity regulation, good stakeholder management and a structural approach of the validation.