The analysis and management of an organisation's working capital and its sources of finance, to ensure that it is able to pay its obligations when they fall due.

Every organisation needs to run stress scenarios to right-size its liquidity buffers

"Now working at a bank, I treat liquidity risk totally differently from the way I saw it when I was working for a [non-financial] corporate.

Liquidity risk should be understood by running stress scenarios.

In a stress, all the funding providers, your suppliers and anyone who might have credit exposure might want to be protected and withdraw their funds.

Every corporate should run such a scenario and decide how much liquidity to keep aside.

This is very different from the approach that some corporates have that use their cash forecasts under normal scenarios [only] to decide the size of their liquidity buffers."

Dimitris Papathanasiou, CFA - April 2024.

See also

• Black swan
• Cash management
• LAB
• Liquidity
• Liquidity buffer
• Liquidity management tool
• Liquidity risk
• Market-based approaches to cash management and liquidity
• Overall Liquidity Adequacy Rule (OLAR)
• Scenario analysis
• Stress test
• UK gilt crisis
• Working capital

Other resource

• Practical liquidity management for treasurers

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