Liquidity Risk Management
We define liquidity risk as the risk of losses arising from funding difficulties due to deterioration of our financial position that make it difficult for us to raise necessary funds or force us to raise funds at significantly higher interest rates than usual.
Mizuho Financial Group manages liquidity risks for the Mizuho group as a whole. Specifically, Mizuho Financial Group establishes a 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 the basic matters pertaining to liquidity risk management policies. The Risk Management Committee of Mizuho Financial Group broadly discusses and coordinates matters relating to the basic policies in connection with the liquidity risk management, operations, and monitoring, as well as proposes responses to emergencies such as sudden market changes. Our Group CRO is responsible for matters relating to liquidity risk management planning and operations. Our Risk Management Department is responsible for monitoring, reporting and analyzing liquidity risk, making proposals in connection with liquidity risk, and formulating and implementing plans relating to liquidity risk management. In addition, our Group CFO is responsible for matters relating to the planning and operation of funds management, and the Financial Planning Department is responsible for its monitoring and also for planning and implementing measures relating to funds management to maintain appropriate funding liquidity. Reports on the liquidity risk management are submitted to our Board of Directors, the Risk Committee, the Executive Management Committee, our President & Group CEO, and the Business Policy Committees, respectively on a regular basis.
For the purpose of managing the liquidity risk of our principal banking subsidiaries and other core group companies, Mizuho Financial Group regularly receives reports from each of them to properly identify and manage their liquidity risk. These subsidiaries and core group companies, which account for most of the Mizuho group's exposure to liquidity risk, establish their basic policies based on ours, and their boards of directors determine important matters relating to liquidity risk management.
Liquidity Risk Management Method
We manage liquidity risk through the frameworks 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 funds 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 the 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 our President & Group CEO. An excess over any of these limits is immediately reported and addressed in accordance with pre-determined procedures.
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 to evaluate the appropriateness of our annual funding plan.
We have established a group-wide framework of assessing the levels of the liquidity risks by categorizing them into "normal," "anxious," and "crisis," to reflect the funding conditions. In addition, we set early warning indicators ("EWIs") and monitor on a daily basis to manage the funding conditions. The EWIs include stock prices, credit ratings, amount of liquidity reserve assets such as Japanese government bonds, our funding situations, etc.