Annual Accounts and Report as at 30 June 2011 Draft - Mediobanca

1.3 BANKING GROUP: LIQUIDITY RISKQUALITATIVE INFORMATIONLiquidity risk is currently measured at Group level through two indicators.The first is a regulatory indicator, based on a scheme recommended by theBank of Italy and sent to the supervisory authority once a week. This focuses onoperations with institutional counterparties and corporate and large corporatecustomers, plus flows deriving from treasury movements and management ofsecurities and finance. The movements generated by contractual deadlines aresupplemented with forecast data over a quarterly time horizon, which, althoughbased on conservative assumptions, do not contemplate extreme stress situations.The regulatory indicator is complemented by an operating indicator, basedon a six-month time horizon, which in addition to the base-case scenario createdby adopting a prudential approach (e.g. not assuming automatic renewal ofmaturities on interbank deals), does contemplate stressful situations involving themain risk factors, such as:— extension of maturities on all the main corporate customer loans andextraordinary drawdowns on committed lines;— major reductions in renewals of interbank funds raised by Group companies(most of which are generally renewed on the basis of the existing commercialrelationships);— significant failure to renew CheBanca! funding when term deposits expire.In both cases, the liquidity balances thus obtained are compared with theamount of the counterbalance capacity, defined narrowly as cash and cashequivalents plus the aggregate of securities held which are eligible for refinancingwith the monetary authorities, and more broadly with the inclusion of less liquidassets (undeliverable bonds, deliverable shares, deliverable receivables) to whichmajor haircuts are applied.Over the course of the year under review, both liquidity monitoringindicators have reflected a counterbalance capacity, defined narrowly, farsuperior to the anticipated net outflow of funds. In terms of survival days, both theindicator generated for the Bank of Italy’s records and the operating indicatorhave reached highs (3 months and 6 months respectively), without the entireamount of even just the securities eligible for refinancing with the EuropeanCentral Bank being exhausted completely. Despite declining in the latter part ofthe financial year, even in the most stressful scenario the residual amount of thecounterbalance capacity totalled over €3bn at the reporting date.212 –