Conclusions

The approach to characterize liquidity as the probability of being solvent is straightforward.
Nevertheless it is incomplete in two senses:
1 After having quantified a potential future lack of funds we have not clarified
how large is the risk triggered by this shortage for the FI. Analysing the FI’s
counterbalancing capacities could give a solution: the probability that the lack
exceeds the ability to raise funds can be detected. In a VaR-like approach we
would try to determine the maximal forward deficit of funds in order not to exceed
the existing counterbalancing capacities – within a predefined probability.
2 Once we have gathered this knowledge, we are still left with the problem of its
economic impacts. One way to transform the information into a policy could be
to establish limits to restrict the business, another would be to increase the
counterbalancing capacity. Both approaches are costly, but more than that we
have to compare actual expenses against the potential loss at least of the equity
capital if the FI ends its existence by becoming insolvent.
A solution will be developed in the next section,