Liquidity Risk Management
We define liquidity risk as the risk of losses arising from funding difficulties due to a deterioration in our financial position that makes it difficult for us to raise necessary funds or that forces us to raise funds at significantly higher interest rates than usual. Mizuho Financial Group manages liquidity risk for the Mizuho group as a whole. Specifically, Mizuho Financial Group establishes the fundamental liquidity risk management policy for the entire group, manages the liquidity risk of our principal banking subsidiaries and other core group companies, and monitors how the group's liquidity risk is being managed as a whole.
Liquidity Risk Management Structure
Our Board of Directors determines basic matters pertaining to liquidity risk management policies. The Risk Management Committee of Mizuho Financial Group broadly discusses and coordinates matters relating to basic policies in connection with liquidity risk management, operations, and monitoring, and proposes responses to emergencies such as sudden market changes. The Group Chief Risk Officer of Mizuho Financial Group is responsible for matters relating to liquidity risk management planning and operations. The Risk Management Department of Mizuho Financial Group is responsible for monitoring liquidity risk, reporting and analysing, making proposals, and formulating and implementing plans relating to liquidity risk management. In addition, the Group Chief Financial Officer of Mizuho Financial Group is additionally responsible for matters relating to planning and running cash flow management operations, and the Financial Planning Department is responsible for monitoring and adjusting the cash flow management situation and for planning and implementing cash flow management to maintain appropriate funding liquidity. Reports on liquidity risk management are submitted to the Risk Management Committee and the Balance Sheet Management Committee (each of which is a business policy committee), the Executive Management Committee and the President & Group CEO on a regular basis.
Our principal banking subsidiaries and other core group companies also establish their basic policies on liquidity risk management to properly identify and manage liquidity risk.
Liquidity Risk Management Method
We manage liquidity risk with the use of "liquidity risk management indicators" and "liquidity categorization." The former is determined for the purpose of managing limits on funds raised in the market considering our fund raising capabilities, and the latter is determined based on our funding conditions. We also carry out liquidity stress testing to verify the sufficiency of liquidity reserve assets and the effectiveness of countermeasures against a possible outflow of funds during a stress event. The results of stress testing are used for cash flow management operations.
Liquidity risk management indicators
Limits on funds raised in the market are set based on a number of time horizons taking into account characteristics and strategies of each of our principal banking subsidiaries and other core group companies. Such limits are discussed and coordinated by the Risk Management Committee, discussed further by the Executive Management Committee, and determined by the President & Group CEO. An excess over any of these limits is immediately reported and addressed according to a pre-determined procedure.
Liquidity stress testing
We carry out stress testing regularly based on market–wide factors, idiosyncratic factors of the group, and a combination of both types of factors to verify the sufficiency of liquidity reserve assets and the effectiveness of our liquidity contingency funding plans. Furthermore, we utilize stress testing for evaluating the appropriateness of our annual funding plan.
We have established a group–wide framework of liquidity risk stages such as "normal," "anxious," and "crisis," which reflects funding conditions. In addition, we set early warning indicators ("EWIs") and monitor on a daily basis to manage funding conditions. The EWIs we use include stock prices, credit ratings, amount of liquidity reserve assets such as Japanese government bonds, and our funding situation.