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ECONOMIC LIQUIDITY STRESS MODELLING

OTTO HUBER, Global Head Of Liquidity  Risk , Credit Suisse

Otto, can you please tell the Center for Financial Professional readers about yourself and your professional experience

Otto Huber
Otto Huber

I have been with Credit Suisse for over 11 years. I am currently Global Head of Liquidity Risk Management, a role in which role I have global functional responsibility for the second line of defence for liquidity risk management. Before joining the Risk Division in October 2015, I was in Credit Suisse’s Global Treasury in Zurich and New York, where I was responsible for Treasury Risk & Modelling. In this role I was in charge for the modelling of non-maturing products and non-interest bearing assets and liabilities, the valuation and risk assessment of Treasury-issued debt and capital instruments, as well as for the Treasury funds transfer pricing methodology. Before joining Credit Suisse, I studied at the University of St.Gallen from which I hold a PhD in finance.

We are looking forward to you presenting at the Risk EMEA Summit where you will be focusing on modelling. Why do you believe that economic liquidity stress modelling in particular is a key talking point at the Summit?

Unlike classical market risk management and modelling, which is quite mature and standardized across the industry, liquidity risk modelling is still developing. I believe there is a tremendous mutual benefit by sharing experience across different firms on their approaches to liquidity risk modelling. Our bank just underwent a significant effort to overhaul our internal liquidity risk model and I am looking forward to sharing my experience with peers and to learn from their approaches to this topic.

Why is it important to compare internal economic liquidity stress models and regulatory metrics?

There has to be a link between the internal liquidity risk model and regulatory metrics. If the internal model is less restrictive than the regulatory metrics, then a firm cannot focusing on managing to the internal metric. I think the internal model shall generally be more restrictive than the regulatory metrics, while addressing the weaknesses of the latter. In case the internal metric is more restrictive, it can be used as universal risk metric for liquidity management purposes and will thereby automatically ensure regulatory compliance.

Without giving too much away, can you explain some of the model calibration involved within economic liquidity stress modelling?

Happy to do so during my presentation at the conference.

How do you see the role of liquidity risk professional changing over the next 6-12 months?

I reckon most firms have realized that a much stronger second line of defence for liquidity risk management is needed than they used to have in the past. Many firms, including Credit Suisse, have significantly increased the second line of defence for liquidity risk management in terms of size, seniority, and business proximity. Our team has quadrupled over the last 2 years and I anticipate it will continue to grow – at a much slower pace though. Therefore, we now have to deliver on our promises to management and the regulators and continue the journey we’ve just started.