Annual Report 2011 (separate financial statements)

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These strategic goals are detailed in the rules in the Group Treasury Principles, and the Groupwide
Group Liquidity Guideline in conjunction with the emergency plan for safeguarding liquidity
for daily management purposes. These define the processes, management tools and hedging
instruments needed to avert or deal with a potential or real acute crisis. They also contain an
escalation mechanism, which comes into operation when early warning signals are triggered.
At BayernLB, liquidity risks are limited daily at the operating unit level based on defined scenarios.
This ensures that the liquidity escalation and management process operates in a consistent and
effective manner at all times.
Strategic and operational liquidity management at BayernLB is the responsibility of the Group
Treasury and Treasury Products Divisions within the Markets Business Area. This is also where
operational liquidity is managed on the market and ample liquidity counterbalancing capacity is
ensured at all times. The creation of liquidity overviews, such as liquidity maturity balance sheets,
limitation indicators and Group-wide risk monitoring of liquidity risks, takes place in the Group
Risk Control Division within the Risk Office Central Area.
With an eye on the requirements in the third revision of MaRisk, BayernLB began to qualitatively
and quantitatively increase its liquidity reserves ahead of time. This strategy was systematically
continued in 2011.
Measurement
BayernLB regularly creates liquidity overviews to measure, analyse, monitor and report on liquidity
risk. In these, liquidity gaps, i.e. the net of deterministic and non-deterministic future payment
inflows and outflows, and the realisable liquidity counterbalancing capacity, are presented on a
rolling daily basis and compared.
The liquidity counterbalancing capacity estimates in terms of volumes and timing the ability of
BayernLB to obtain cash at the earliest possible moment at market rates in accordance with regulatory
requirements. It indicates the ability to cover liquidity gaps and therefore all payment-flow
based liquidity risks. The most important components of the liquidity counterbalancing capacity
are the portfolio of highly liquid, eligible securities, additional available securities eligible as
collateral at the central bank, and the issue potential in the register of cover.
Liquidity risks from off-balance sheet conduits are fully incorporated. Anticipated financial cash
flows from non-deterministic products are taken into account using model assumptions. The
model assumptions used for positions in conduits are based on historical data of utilisations and
default rates or on contractual claims against BayernLB based on conservative assumptions.
When forecasting future cash flows, unplanned events are also taken into account. For example,
payment defaults in the lending business are incorporated in the liquidity overview through the
integration of specific and general loan loss provisions.
Model assumptions are regularly tested and adapted using backtesting.
BayernLB . 2011 Annual Report and Accounts