Emerging Practices for Capital Adequacy © Copyright 2003, CCRO. All rights reserved. 57 8.7 Summary - Liquidity Adequacy In the discussion of liquidity/financing risks, we outlined the basic components of a framework for assessing liquidity adequacy. This framework can be used to promote and support stakeholder confidence and decision-making in performance management, as well as to increase transparency into the financial health of an organization. Depending on the size and complexity of the organization, different models or methodologies to assess risk factors in measuring liquidity adequacy can be used. The framework supports simple or more robust approaches. Figure 21 incorporates all the components of calculating liquidity adequacy including time horizon and confidence level. It is intended as one means to illustrate a liquidity adequacy framework for internal management reporting or to be used by external stakeholders. The CCRO recognizes there may be other ways a company may want to communicate the same information. Figure 21: Example of Liquidity Adequacy 8.8 Other Considerations 8.8.1 Limits Consistent with best practices noted in previous white papers, the CCRO suggests implementing liquidity limits for contingent liquidity requirements as a means to monitor and report on liquidity risk. Limits are discussed in depth in the CCRO’s “Governance and Controls” white paper. Months Forw ard Net Cash in $ Billions Revolver/Cash and Cash Equivalents/Cash from O perations Total Cash Flow Dem ands Capital Surplus 0 1 2 3 4 5 6 7 8 9 10 11 12 8 7 6 5 4 3 2 1 0 Asset Dispositions Shelf Capacity Contingent Liquidity and CFaR W orking Capital